-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D0WK7+FhqSKfXX0bt5yIu+UjPvD6fX95RXIdNaMmzm/1gr29yx3RDwg0pD7d5ED/ hlhr/yjdQ/4dzkZEW1WdnQ== 0000278041-96-000008.txt : 19981229 0000278041-96-000008.hdr.sgml : 19981229 ACCESSION NUMBER: 0000278041-96-000008 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960327 DATE AS OF CHANGE: 19981228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SHIPHOLDING CORP CENTRAL INDEX KEY: 0000278041 STANDARD INDUSTRIAL CLASSIFICATION: 4412 IRS NUMBER: 362989662 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-10852 FILM NUMBER: 96539128 BUSINESS ADDRESS: STREET 1: 650 POYDRAS ST STE 1700 CITY: NEW ORLEANS STATE: LA ZIP: 70130 BUSINESS PHONE: 5045295461 10-K 1 1995 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ____________________ FORM 10-K (Mark One) X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR ___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _________ to _________ Commission File No. 2-63322 INTERNATIONAL SHIPHOLDING CORPORATION (Exact name of registrant as specified in its charter) Delaware 36-2989662 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 650 Poydras Street, New Orleans, Louisiana 70130 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (504) 529-5461 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered ------------------------ -------------------------- Common Stock, $1 Par Value New York Stock Exchange 9% Senior Notes Due 2003 New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x State the aggregate market value of the voting stock held by non-affiliates of the registrant. Date Amount ------ ----------- March 1, 1996 $89,203,249 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Common stock, $1 par value. . . . . . . . 6,682,887 shares outstanding as of March 1, 1996 DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report to Shareholders for the fiscal year ended December 31, 1995, have been incorporated by reference into Parts I and II of this Form 10-K. Portions of the registrant's definitive proxy statement dated March 12, 1996 have been incorporated by reference into Part III of this Form 10-K.
INTERNATIONAL SHIPHOLDING CORPORATION Form 10-K Table of Contents PART I. PAGE ITEM 1. BUSINESS 2 General 2 History 4 Liner Service/Contracts of Affreightment 5 Military Sealift Command 6 Pure Car Carriers 8 Bulk Carrier 8 Float-On/Float-Off Special Purpose Vessels 9 Domestic Transportation Services 9 Investments in Specialized Vessels 10 Ancillary Services 11 Marketing 11 Insurance 11 Regulation 12 Competition 14 Employees 15 ITEM 2. PROPERTIES 16 ITEM 3. LEGAL PROCEEDINGS 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 4a. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT 18 PART II. ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS 20 ITEM 6. SELECTED FINANCIAL DATA 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT'S ON ACCOUNTING AND FINANCIAL DISCLOSURE 20 PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 21 ITEM 11. EXECUTIVE COMPENSATION 21 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 21 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED MATTERS 21 PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. 22 SIGNATURES 24
PART I ITEM 1. BUSINESS GENERAL The Company, through its subsidiaries, operates a diversified fleet of U. S. and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. The Company's fleet consists of 29 ocean-going vessels, 15 towboats, 129 river barges, 26 special purpose barges, approximately 1,650 LASH barges and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts and; (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. The Company believes that this strategy has produced valuable long-term relationships with its customers and stable operating cash flows. The Company is the only significant operator of the LASH (lighter aboard ship) system, which it pioneered in 1969. The Company's LASH fleet includes ten large LASH vessels, four LASH feeder vessels and approximately 1,650 LASH barges. In its liner services, the Company uses the LASH system primarily to gather cargo on rivers, in island chains and in harbors that are too shallow for traditional vessels and to transport to and from those areas large items, such as forest products, natural rubber and steel, that cannot be transported efficiently in containerized vessels. In addition, the LASH system enables barges to be rapidly loaded onto and unloaded from the large LASH vessels without shoreside support facilities while minimizing the number of times that the cargo is handled. Because the Company's LASH barges are used primarily to transport large items, the Company's LASH fleet often has a competitive advantage over containerized vessels. Additionally, because containerized and breakbulk vessels cannot operate in certain of the areas where the Company's LASH system operates, the Company often has a competitive advantage over such vessels. The Company's diversified ocean-going fleet also includes the following: (i) two international flag and two U.S. flag pure car carriers specially designed to transport automobiles; (ii) two U.S. flag ice-strengthened multi-purpose vessels; (iii) three roll-on/roll-off vessels that permit rapid deployment of rolling stock, munitions and other military cargoes requiring special handling; (iv) one international flag cape-size bulk carrier; (v) one U.S. flag semi-submersible barge; (vi) one U.S. flag molten sulphur carrier, which is used to carry molten sulphur from Louisiana and/or Texas to a processing plant on the Florida Gulf Coast; (vii) two international flag float-on/float-off special purpose vessels, which, together with 26 special purpose barges, are used to provide ocean transportation of supplies for the Indonesian operations of a major copper and gold mining company; (viii) and one U.S. flag conveyor-equipped self- unloading coal carrier which, under a long-term charter, carries coal in the coastwise and near-sea trade. The Company also operates 14 inland waterway towboats and 111 super-jumbo river barges that transport coal from Indiana to Florida for an electric utility via shoreside unloading facilities owned and operated by the Company. Through its principal operating subsidiaries, Central Gulf Lines, Inc. ("Central Gulf"), LCI Shipholdings, Inc. ("LCI"), Forest Lines Inc. ("Forest Lines") and Waterman Steamship Corporation ("Waterman"), the Company engages primarily in five types of services: (i) international flag LASH liner service between U. S. Gulf and East Coast ports and ports in northern Europe, and a subsidized U. S. flag LASH liner service between U. S. Gulf and East Coast ports and ports in South Asia, the Middle East and northern Africa; (ii) time charters to and other contracts with the Military Sealift Command ("MSC") for use in its military prepositioning program and to service scientific operations in the Arctic and Antarctic; (iii) time charters to transport Toyota and Honda automobiles from Japan to the United States and Hyundai automobiles from Korea primarily to the United States and Europe; (iv) a contract with a major copper and gold mining company to provide ocean transportation of its supplies for its mining operations in Indonesia and; (v) domestic transportation services, primarily involving its coal and sulphur contracts and its ownership of an inter-modal transfer and warehouse facility in Memphis, Tennessee. The Company currently has time charters or contracts to carry cargoes for commercial customers that include International Paper Company, Freeport-McMoRan Resource Partners, P. T. Freeport Indonesia Company, The Goodyear Tire and Rubber Company, Toyota Motor Corporation, Honda Motor Co., Ltd., Hyundai Motor Company and New England Power Co. The Company operates eight vessels for the MSC under charters or contracts that typically contain options permitting MSC to extend the charter or contract on similar terms and conditions for one or more extension periods. In most cases, the MSC has exercised its renewal options on the Company's charters or contracts, and the Company generally has been successful in winning charter or contract renewals when they are rebid. The Company's business historically has generated stable cash flows because most of its medium- to long-term charters provide for a daily charter rate that is owed whether or not the charterer utilizes the vessel (unless the vessel is unavailable for the charterer's use) and most of its medium- to long-term contracts guarantee a minimum amount of cargo for transportation. The Company is partially insulated from increases in certain operating expenses because time charters generally require the charterer to pay certain voyage costs, including fuel, port and stevedoring expenses, and often include cost escalation features covering certain of the expenses paid by the Company. HISTORY Central Gulf was founded in 1947 by the late Niels F. Johnsen and his sons, Niels W. Johnsen, the Company's current Chairman, and Erik F. Johnsen, its current President. Central Gulf was privately held until 1971 when it was acquired by Trans Union Corporation. In 1978, the Company was formed to act as a holding company for Central Gulf, LCI and other affiliated companies in connection with the 1979 spin-off by Trans Union of the Company's common stock to Trans Union's stockholders. In 1986, the Company acquired the assets of Forest Lines, and, in 1989, the Company acquired the stock of Waterman. Since its spin-off from Trans Union, the Company has continued to act solely as a holding company, and its only significant assets consist of the capital stock of its subsidiaries. LINER SERVICES/CONTRACTS OF AFFREIGHTMENT INTERNATIONAL FLAG. Under the name "Forest Lines", the Company operates two international flag LASH vessels and a self-propelled, semi-submersible feeder vessel on a scheduled liner service. Forest Lines normally makes 11 round trip sailings per LASH vessel per year between U. S. Gulf and East coast ports and ports in northern Europe. Approximately one-half of the aggregate eastbound cargo space is reserved for International Paper Company under a long-term contract of affreightment. The remaining space is provided on a voyage affreightment basis to commercial shippers. Historically, approximately 20% has been used by other paper manufacturers. The remaining 30% has been used by various commercial shippers to carry general cargo. Since 1969, when the LASH liner service commenced operation, the vessels generally have been fully utilized on their eastbound voyages. The Company has had ocean transportation contracts with International Paper since 1969 when the Company had two LASH ships built to accommodate International Paper's trade. The Company's contract of affreightment with International Paper is for the carriage of wood pulp, liner board and other forest products, the characteristics of which are well suited for transportation by LASH vessels. The LASH system minimizes damage to such cargo by reducing the number of times that the cargo is handled. In addition, the LASH system permits the Company to load and unload these products at the shipper's and the receiver's facilities, which are generally located on river systems that container and breakbulk vessels do not serve. The Company's current contract with International Paper is for a ten-year term ending in 2002. Over the years, the Company has established a base of commercial shippers to which it provides space on the westbound Forest Lines service. The principal cargoes carried westbound are high-grade paper products, aluminum slabs, steel products and other general cargo. Over the last five years, the westbound utilization rate for these vessels averaged approximately 88% per year. U. S. FLAG. Waterman is a party to an operating differential subsidy agreement with the U. S. Maritime Administration, an agency of the Department of Transportation ("MarAd"), that permits the Company to operate U. S. flag vessels on designated international trade routes and receive subsidy payments from the United States government approximating the excess of certain vessel expenses, primarily wages, over comparable costs of the Company's principal foreign flag competitors on the same trade routes. Under the subsidy agreement, the Company operates a scheduled liner service that makes approximately 16 round trip voyages per year (four per vessel) between U. S. Gulf and Atlantic ports and ports in the Red Sea, Persian Gulf and Indian Ocean (Trade Route No. 18) and ports in Indonesia, Malaysia and Singapore (Trade Route No. 17). The subsidy agreement also permits the Company to make up to 18 calls per year at Egyptian ports on the Mediterranean and up to 12 calls per year to south and east African ports. The Company also operates FLASH vessels as feeder vessels in this service in southeast Asia. In 1995, the Company received approximately $22.7 million under its subsidy agreement. The Company's subsidy agreement with MarAd expires on December 31, 1996, and it is unlikely that it will be renewed in its current form, if at all. See "Item 1. Business - Regulation" for a discussion of the subsidy program. On the eastbound portion of this service, a significant part of each vessel's cargo traditionally has been shipped to lesser developed countries under the Public Law-480 program, pursuant to which the United States government sells or donates surplus food products for export to developing countries. 75% of this cargo is reserved for carriage by U.S. flag vessels, if they are available at reasonable rates. Awards under the Public Law-480 program are made on a voyage-to-voyage basis through periodic competitive bidding. The remaining eastbound cargo consists of general cargo, including some military equipment. Over the last five years, these vessels generally have been fully utilized on their eastbound voyages. On the westbound portion of this service, the Company provides a significant portion of its cargo space to Goodyear for the transportation of natural rubber under a contract of affreightment expiring in December 1996. Space is also provided on a voyage-to-voyage basis to other importers of natural rubber, including Uniroyal Goodrich Tire Co., Bridgestone/Firestone, Inc. and certain members of the Rubber Trade Association. The Company has had a continuing relationship with such companies and the Association since the early 1970s. The Company's LASH barges are ideally suited for large shipments of natural rubber because damage to rubber due to compression is minimal as compared to the damage that can occur when shipments are made in traditional breakbulk vessels. As a result, Waterman is the largest U.S. flag carrier of natural rubber from southeast Asia to the United States. The remaining westbound cargo generally consists of coffee, jute, guar, piece goods and other general cargo. Over the last five years, these vessels generally have been fully utilized on their westbound voyages. MILITARY SEALIFT COMMAND GENERAL. The Company has had contracts with the MSC (or its predecessor) almost continuously for several decades. At the present time, the Company's subsidiaries have eight vessels under contract to the MSC. These vessels are employed in the MSC's prepositioning programs, which strategically place military cargo throughout the world, or are chartered to the MSC to service long-term scientific operations. The Company believes that the demand for military prepositioning vessels will at least remain steady during the near term, notwithstanding planned reductions in overall military spending, because these vessels are vital to the military's ability to respond quickly to international incidents throughout the world without incurring the significant costs of operating foreign bases, some of which also may not be available because of changing political situations. MSC charters and contracts are awarded through competitive bidding, for fixed terms with options allowing the MSC to extend the charters or contracts for additional periods. In most cases, the MSC has always exercised its extension options, and the Company generally has been successful in winning renewals when the charters and contracts are rebid. All charters and contracts require the MSC to pay certain voyage costs, including fuel, port and stevedoring expenses, and certain charters and contracts include cost escalation features covering certain of the expenses paid by the Company. LASH VESSELS. The Company charters four U. S. flag LASH vessels to the MSC under time charters. One of these charters expires in July 1996, and provides the MSC with an option to renew the contract for two additional 17-month periods. The other three charters expire in April 1996, May 1996, and March 1997, respectively. After these charters expire, it is anticipated that the MSC will invite rebidding for these contracts. The Company has generally been successful in winning renewals when contracts are rebid. In the event MSC does not invite rebids, or the Company is unsuccessful in winning renewals, these vessels will most likely be placed in commercial service. The fourth charter expires in July 1996, and provides the MSC with an option to renew the contract for two additional 17-month periods. These vessels are in the MSC's prepositioning force stationed in the Indian Ocean area. ICE-STRENGTHENED MULTI-PURPOSE VESSELS. The Company owns and operates the only two U.S. flag ice-strengthened multi-purpose vessels. These vessels are capable of transporting containerized and breakbulk cargo. One of the vessels is being operated under a charter with the MSC that will expire in August 1996 and may be extended for an additional 17-month period at the option of the MSC. The vessel is being used by the MSC to resupply Pacific rim military bases and to supply scientific projects in the Arctic and Antarctic. The other vessel was operated under a charter with MSC until that charter expired in late 1995. The MSC did not exercise its option to renew the charter for an additional 17-month period, and the vessel is now being operated in the open market on a cargo offered basis. ROLL-ON/ROLL-OFF VESSELS. In 1983, Waterman was awarded a contract to operate three U. S. flag roll-on/roll- off vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship ("MPS") program. These vessels represent three of the four MPS vessels currently in the MSC's Atlantic fleet, which provides support for the U. S. Marine Corps. These ships are designed primarily to carry rolling stock and containers, and can each carry support equipment for 17,000 military personnel. Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract, but retained the right to operate the vessels under operating agreements. The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC's option for additional five- year periods up to a maximum of twenty-five years. In 1993, the Company reached an agreement with MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full twenty- five years. The charters will now terminate in the years 2009 and 2010. The operating agreements are for corresponding periods and are renewed as the charters are renewed. SEMI-SUBMERSIBLE BARGE. In late 1989, the Company acquired and commenced operation of a U. S. flag semi- submersible barge, the Caps Express. The Caps Express was initially deployed under a charter to the MSC and was used extensively in Operation Desert Shield/Desert Storm. The charter expired in April 1991, and the MSC did not exercise its renewal option. Since that time, the Caps Express has been operated in the commercial market. PURE CAR CARRIERS U. S. FLAG. In 1986, the Company entered into multi- year charters to carry Toyota and Honda automobiles from Japan to the United States. To service these charters, the Company had constructed two U. S. flag pure car carriers specially designed to carry 4,000 and 4,660 automobiles, respectively. Both vessels were built in Japan, but are registered under the U.S. flag, making them two of only four U.S. flag pure car carriers in the Japanese trade. To be competitive with foreign flag vessels operated by foreign crews, the Company worked in close cooperation with the unions representing the Company's U.S. citizen shipboard personnel. Service under these charters commenced in the fourth quarter of 1987. These charters have since been renewed for additional multi-year terms. INTERNATIONAL FLAG. Since 1988, the Company has transported Hyundai automobiles from Korea primarily to the United States and Europe under two long-term charters. To service these charters, the Company had two new pure car carriers constructed by a shipyard affiliated with Hyundai. Each of the vessels has a carrying capacity of 4,800 automobiles. Under each of the car carrier charters, the charterers are responsible for voyage costs including fuel, port and stevedoring expenses while the Company is responsible for normal operating expenses including crew wages, repairs and insurance. The Hyundai charters also include escalation features covering certain of the expenses paid by the Company. During the terms of these charters, the Company is entitled to its full fee irrespective of the number of voyages completed or the number of cars carried per voyage. BULK CARRIER In 1990, the Company acquired a 148,000 dwt cape size dry bulk carrier. The vessel has since been fully employed under various charters in specific trading areas where bulk cargoes move on a regular basis. FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSELS During 1994, the Company entered into a long-term contract to provide ocean transportation services to a major mining company producing copper concentrates at its mine in West Irian Jaya, Indonesia. The Company acquired two semi- submersible barge carrying vessels and had 26 cargo barges constructed by shipyards in the Orient to be used with the aforementioned vessels. The Company also charters a small container vessel in order to fulfill the requirements of the contract, which commenced in late 1995. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." DOMESTIC WATER TRANSPORTATION SERVICES COAL. In 1981, the Company entered into a 22-year contract expiring in 2004 with a Florida based rural electric generation and transmission cooperative for the transportation of coal from Mt. Vernon, Indiana to Gulf County, Florida. Under this contract, which was awarded pursuant to competitive bidding, the Company is annually guaranteed a minimum of 2.7 million tons of coal to be transported by inland waterways through its operation of 14 chartered towboats, 108 chartered super-jumbo river barges and three such barges that it owns. Under this contract, the Company typically has transported three million tons of coal per year. To protect both parties against cost variations, the contract contains escalation and de- escalation clauses designed to adjust the contract price for fluctuations in fuel costs, wages and other operating expenses. The Company is also responsible for unloading the barges at the discharge point in Gulf County, Florida and transferring the coal into railcars. To facilitate this process, the Company owns and operates an automated terminal facility. The terminal can be operated by relatively few employees and is capable of loading and unloading three times the amount of coal currently transported through the facility under the contract. In late 1995, the Company purchased an existing U.S. flag self-unloading Coal Carrier which it concurrently chartered to a New England based electric utility company under a 15-year contract to carry coal in the coastwise and near-sea trade. The ship will also be used, from time to time during this charter period, to carry coal and other bulk commodities for account of other major charterers. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources." MOLTEN SULPHUR. In 1994, the Company entered into a 15- year transportation contract with an affiliate of a major sulphur producer for which it had built a 24,000 deadweight ton molten sulphur carrier that carries molten sulphur from Louisiana and/or Texas to a fertilizer plant on the Florida Gulf Coast. Under the terms of this contract, the Company is guaranteed the transportation of a minimum of 1.8 million tons of sulphur per year. The contract also gives the charterer three five-year renewal options. The vessel delivered and began service during late 1994. LITCO FACILITY. During 1991, the Company entered into an agreement with Cooper/T. Smith Stevedoring pursuant to which the Company acquired a 50% interest in a newly constructed, all weather rapid cargo transfer facility at the river port of Memphis, Tennessee for handling LASH barges transported by subsidiaries of the Company in its LASH liner services. The terminal began operation in May 1992 and provides 287,500 square feet of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck and heavy-lift operations. In June 1993, the Company purchased the other 50% interest for $1.9 million from Cooper/T. Smith Stevedoring, which will continue to manage the facility under a management agreement with the Company. INVESTMENTS IN SPECIALIZED VESSELS LIQUID PETROLEUM GAS. In 1985, the Company purchased a one-third interest in A/S Havtor, a Norwegian company that owned interests in and chartered-out on a long-term basis vessels specializing in the transportation of liquid petroleum gas and various chemical products. In 1985, the Company also purchased a 14.2% interest in A/S Havtor Management, a Norwegian ship management company affiliated with A/S Havtor. During the first quarter of 1993, the Company sold an 18.5% interest in A/S Havtor thereby reducing its interest to approximately 14.8%. In 1994, A/S Havtor, certain associated companies and a portion of A/S Havtor Management were merged into Havtor AS, a publicly held company listed on the Oslo Stock Exchange. After this merger, the Company's interest in Havtor AS was approximately 12.6%, including both direct and indirect holdings. Havtor AS operates mainly a fleet of about 25 liquified petroleum gas carriers, 7 dry bulk carriers and was also joint owner with the Company in two PROBO vessels. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company, merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and a 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to this merger, the Company's interest in Havtor AS approximated 6.4%. During the second quarter of 1995, the Company purchased the Norwegian interest A/S Havfond which held a promissory note collateralized by shares of Havtor AS. After this acquisition, the Company's interest in Havtor AS approximated 7.7%. In November 1995, the Company sold its 7.7% interest in Havtor AS for cash of approximately $48 million. The sale resulted in a before tax gain of approximately $17 million. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations-Other Income and Expense". ANCILLARY SERVICES The Company has several subsidiaries providing ship charter brokerage, agency, barge fleeting and other specialized services to the Company's subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies. The income produced by these services substantially covers the related overhead expenses. These services facilitate the Company's operations by allowing it to avoid reliance on third parties to provide these essential shipping services. The Company also has a 50% equity interest in a firm offering ship management services in Singapore. MARKETING The Company maintains marketing staffs in Washington, D. C., New York, New Orleans, Houston, Chicago, Baltimore, Oakland, Rotterdam and Singapore and maintains a network of marketing agents in major cities around the world who market the Company's liner, charter and contract services. The Company markets its Trans-Atlantic LASH liner service under the trade name "Forest Lines", and its LASH liner service between the U. S. Gulf and Atlantic coast ports and South Asia ports under the Waterman house flag. The Company advertises its service in trade publications in the United States and abroad. INSURANCE The Company maintains protection and indemnity ("P&I") insurance to cover liabilities arising out of the ownership or operation of vessels with Assuranceforeningen GARD and the Standard Steamship Owners' Protection & Indemnity Association (Bermuda) Ltd., which are mutual shipowners' insurance organizations commonly referred to as P&I clubs. Both clubs are participants in and subject to the rules of their respective international group of P&I associations. The premium terms and conditions of the P&I coverage provided to the Company are governed by the rules of each club. The Company maintains hull and machinery insurance policies on each of its vessels in amounts related to the value of each vessel. This insurance coverage, which includes increased value, freight and time charter hire, is maintained with a syndicate of hull underwriters from the United States, British, French and Scandinavian insurance markets. The Company maintains war risk insurance on each of the Company's vessels in an amount equal to each vessel's total insured hull value. War risk insurance is placed through U.S., British, French and Scandinavian insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the applicable P&I club. The Company also maintains loss of hire insurance with U.S., British, French and Scandinavian markets to cover its loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy. Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers' compensation, office contents, and general liability risks are maintained with underwriters in the United States and British markets. The Company also carries insurance to meet certain liabilities that could arise from the discharge of oil or hazardous substances in U.S., international and foreign waters. Insurance premiums for the coverage described above vary from year to year depending upon the Company's loss record and market conditions. In order to reduce premiums, the Company maintains certain deductible and co-insurance provisions that it believes are prudent and generally consistent with those maintained by other shipping companies and in recent years has increased the self-retention portion under its insurance program. REGULATION The Company's operations between the United States and foreign countries are subject to the Shipping Act of 1916 (the "Shipping Act"), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990 and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U. S. Coast Guard, and certain other international, federal, state and local laws and regulations, including international conventions and laws and regulations of the flag nations of its vessels. Pursuant to the requirements of the Shipping Act, the Company has on file with the Federal Maritime Commission tariffs reflecting the outbound and inbound rates currently charged by the Company to transport cargo between the United States and foreign countries as a common carrier. These tariffs are filed by the Company either individually or in connection with its participation as a member of rate or conference agreements, which are agreements that (upon becoming effective following filing with the Federal Maritime Commission) permit the members to agree concertedly upon rates and practices relating to the carriage of goods in U. S. and foreign ocean commerce. Tariffs filed by a company unilaterally or collectively under rate or conference agreements are subject to Federal Maritime Commission approval. Once a rate or conference agreement is filed, rates may be changed in response to market conditions on 30 days' notice, with respect to a rate increase, and one day's notice, with respect to a rate decrease. The Merchant Marine Act of 1936, as amended (the "Merchant Marine Act"), authorizes the Federal government to pay an operating differential subsidy to U. S. flag vessels employed in the foreign trade of the United States. Under the subsidy program, MarAd is authorized to pay qualified U.S. flag operators (i) the differential between U. S. and foreign crew wage costs and (ii) the differential between U.S. and foreign costs of protection and indemnity insurance, hull and machinery insurance, and maintenance and repairs not compensated by insurance, so that U.S. ships can compete on an equal footing with their lower-cost foreign competitors. To qualify for the subsidy, vessels must be built in the United States, documented under the U.S. flag and be at least 75% owned by U.S. citizens. Under subsidy contracts, which are typically 20 years in length, operators provide service on "essential trade routes" as determined by MarAd. The typical subsidized operator is required to employ its vessels between a stated minimum and maximum number of sailings each year. Currently, four liner operators, including Waterman, and 13 bulk carrier operators hold subsidy contracts for a total of 47 liner and 28 bulk ships. Total U.S. governmental subsidy appropriations for the fiscal year ended September 30, 1995, were $214.4 million, and $163.6 million has been appropriated for the fiscal year ending September 30, 1996. Approximately 85% of the aggregate subsidy is paid to offset crew wage differentials. Since 1981, the Federal government has entered into no new subsidy contracts. In 1991, the Bush administration announced that current contracts would be honored, but no new subsidy contracts would be entered into as the old contracts expire. The Clinton administration has continued this policy. Waterman's subsidy contract expires on December 31, 1996, and all other subsidy agreements with U.S. flag liner operators expire by December 31, 1998. This year, the Clinton administration proposed legislation that would implement a new subsidy program, the Maritime Security Program. If enacted, this program would authorize funding for approximately 50 U.S. flag ships for up to ten years. Legislation to authorize the Maritime Security Program has passed the U.S. House of Representatives and is pending in the U.S. Senate. Funding for the first year of this program is likewise pending in Congress. Both Waterman and Central Gulf would intend to apply for participation in this new program. There can be no assurance that the Maritime Security Program will be adopted and funded by Congress, that if adopted it will be signed by the President, or that if enacted into law, it will provide funding to all or some of the Waterman and Central Gulf vessels. Therefore, it is possible that the existing program will be terminated, that no replacement program will be enacted, or that a replacement program will provide substantially less funding than the current program. Alternative steps are under consideration so as to continue the Company's competitive position. Seven of the Company's U.S. flag LASH vessels were constructed with the aid of construction differential subsidies and Title XI loan guarantees administered by MarAd, the receipt of which obligates the Company to comply with various dividend and other financial restrictions. Vessels constructed with the aid of construction differential subsidies may not be operated in domestic coastwise trade or domestic trade with Hawaii, Puerto Rico or Alaska without the permission of MarAd and without repayment of the construction differential subsidy under a formula established by law. Recipients of Title XI loan guarantees must pay an annual fee of up to 1% of the loan amount. Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action. The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered. In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days' notice. However, the MSC has never exercised such termination right with respect to the Company. Certain of the Company's operations, including its subsidized U.S. flag LASH liner service and its carriage of U.S. foreign aid cargoes, as well as the Company's coal and molten sulphur transportation contracts and its Title XI financing arrangements, require the Company to be as much as 75% owned by U.S. citizens. The Company monitors its stock ownership to verify its continuing compliance with these requirements and has never had more than 1% of its common stock held of record by non-U.S. citizens. The Company's charter and stock transfer procedures do not prohibit the acquisition of its common stock by non-U.S. citizens, although the Board of Directors has proposed an amendment to the charter to do so, and that amendment will be voted on by the Company's stockholders at the Company's annual meeting to be held in April 1996. See the information contained under the caption "Proposed Amendment to Certificate of Incorporation" on pages 11, 12, 13 and 14 of the Company's "Definitive Proxy Statement" dated March 12, 1996, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, which information is incorporated herein by reference. The Company is required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that it has or can readily obtain all permits, licenses and certificates necessary to permit its vessels to operate. COMPETITION The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies. Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns. Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market. Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss. The Company's strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in identifiable market segments and deploying a substantial number of its vessels under medium- to long-term charters or contracts and on trade routes where it has established market shares. The Company also seeks to compete effectively in the traditional areas of price, reliability and timeliness of service. Competition principally comes from numerous breakbulk vessels and, occasionally, containerized vessels. Much of the Company's revenue is generated by contracts with the MSC and contracts to transport Public Law-480 U.S. government-sponsored cargo, a cargo preference program requiring that 75% of all foreign aid "Food for Peace" cargo must be transported on U.S. flag vessels, if they are available at reasonable rates. The Company competes with all U.S. flag companies, including Overseas Shipholding Group, Inc., OMI Corporation, Marine Transport Lines, Inc., Farrell Lines, Inc., Lykes Brothers Steamship Company, Sea- Land Service, Inc. and American President Lines, Inc. for the MSC work and the Public Law-480 cargo. Additionally, the Company's principal foreign competitors include Hoegh Lines, Star Shipping, Wilhelmsen Lines, and the Shipping Corporation of India. The Company's international flag LASH liner service faces competition from foreign flag liner operators and, to a lesser degree, from U. S. flag liner operators, including those receiving operating differential subsidies. In addition, during periods in which the Company participates in conference agreements or rate agreements, competition includes not only the other participants obligated to charge the same rates, but also non-participants charging lower rates. Because the Company's LASH barges are used primarily to transport large items, such as forest products, natural rubber and steel, that cannot be transported as efficiently in containerized vessels, the Company's LASH fleet often has a competitive advantage over these vessels for this type of cargo. In addition, the Company believes that the ability of its LASH system to operate in shallow harbors and river systems and its specialized knowledge of these harbors and river systems give it a competitive advantage over operators of containerized and breakbulk vessels, which are too large to operate in these areas. The Company's pure car carriers operate worldwide in markets where foreign flag vessels with foreign crews predominate. The Company believes that its U.S. flag pure car carriers can continue to compete effectively if it continues to receive the cooperation of its unions in controlling costs. EMPLOYEES The Company employs approximately 431 shipboard personnel and 331 shoreside personnel. The Company considers relations with its employees to be excellent. All of the Company's U.S. shipboard personnel and certain shoreside personnel are covered by collective bargaining agreements. Central Gulf, Waterman and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel in which the shipping companies servicing U.S. Gulf and East coast ports also must make contributions to pension plans for dockside workers. The Employee Retirement Income Security Act of 1974, as amended, provides for liabilities for withdrawal from a multi-employer pension plan if an employer reduces its operations below a minimum level. It is possible that the failure or withdrawal of any shipping company employer may cause other employers (such as the Company) to increase their plan contributions or result in additional potential liability. The Company has experienced no strikes or other significant labor problems during the last ten years. ITEM 2. PROPERTIES Vessels. Of the 29 ocean-going vessels in the Company's fleet, 26 are owned by the Company and three are operated under operating contracts. Of the approximately 1,650 LASH barges operated in conjunction with the Company's LASH and FLASH vessels, the Company owns approximately 1,330 barges and leases 320 barges under leases with 12-year terms expiring in late 2003 and early 2004. The Company also owns approximately 78 additional LASH barges, which are not required for current vessel operations. All of the Company's barges are registered under the U.S. flag. The Company time charters-in 108 super-jumbo river barges (and owns three such barges) and 14 towboats specially built to meet the requirements of the Company's coal transportation contract. The Company also owns 18 standard river barges chartered to unaffiliated companies on a short-term basis and one towboat currently operated on the spot market. Until May 1993, the 18 river barges were bareboat chartered- in from affiliates of the Company. Upon the expiration of these bareboat charters, the Company purchased the barges from these affiliates for $1.6 million in the aggregate. Except for the approximately 78 LASH barges that are not required for the Company's operations, all of the vessels owned, operated or leased by the Company are in good condition. Since 1988, the Company has completed life extension work on six LASH vessels, completed the refurbishment of approximately 1,300 related barges and acquired 167 LASH barges. Management believes that the useful lives of these vessels have been extended by this work through at least 2003. Under governmental regulations, insurance policies and certain of the Company's financing agreements and charters, the Company is required to maintain its vessels in accordance with standards of seaworthiness, safety and health prescribed by governmental regulations or promulgated by certain vessel classification societies. Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping or, for certain vessels registered overseas, of Norwegian Veritas or Lloyds Register classification societies. Certain of the vessels and barges owned by the Company's subsidiaries are mortgaged to various lenders to secure such subsidiaries' long-term debt. See Note B of the Notes to the Company's Consolidated Financial Statements included elsewhere herein. Other Properties. The Company leases its corporate headquarters in New Orleans, its administrative and sales office in New York and office space in Houston, Chicago, Oakland and Washington, D. C. The Company also leases space in St. Charles and Orleans Parishes, Louisiana for the fleeting of barges. Additionally, the Company leases a terminal in Memphis, Tennessee that is a totally enclosed multi-modal cargo transfer facility. In 1995, the aggregate annual rental payments under these operating leases were approximately $2.4 million. The Company owns two separate facilities in St. Charles Parish, Louisiana and one facility in Jefferson Parish, Louisiana that are used primarily for the storage and fleeting of barges. The Company also owns a terminal in Gulf County, Florida that is used in its coal transportation contract. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits that have arisen in the ordinary course of its business in which claimants seek damages of various amounts for personal injuries, property damage and other matters. All material claims asserted under lawsuits of this nature are believed to be covered by insurance. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 4a. EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT Set forth below is information concerning the directors and executive officers of the Company. Directors are elected by the shareholders for one year terms. Executive officers serve at the pleasure of the Board of Directors.
Name Current Position Niels W. Johnsen Chairman and Chief Executive Officer Erik F. Johnsen President,Chief Operating Officer and Director Harold S. Grehan, Jr. Vice President and Director Niels M. Johnsen Vice President and Director Erik L. Johnsen Vice President and Director Gary L. Ferguson Vice President and Chief Financial Officer David B. Drake Treasurer Laurance Eustis Director Raymond V. O'Brien, Jr. Director Edwin Lupberger Director Edward K. Trowbridge Director
Niels W. Johnsen, 73, has been the Chairman and Chief Executive Officer of the Company since its commencement of operations in 1979 and is also Chairman and Chief Executive Officer of each of the Company's principal subsidiaries. He previously served as Chairman of Trans Union Corporation's ocean shipping group of companies from December 1971 through May 1979. He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971. He is also a director and trustee of Atlantic Mutual Companies, an insurance company and a director of Reserve Fund, Inc., a money market fund. Erik F. Johnsen, 70, has been the President, Chief Operating Officer and Director of the Company since its commencement of operations in 1979 and is also the President and Chief Operating Officer of each of the Company's principal subsidiaries except Waterman for which he serves as Chairman of the Executive Committee. Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and has served as its President since 1966. Mr. Johnsen is also a director of First Commerce Corporation, a bank holding company. Harold S. Grehan, Jr., 68, is Vice President of the Company. He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979. He participated in the development of the Company's LASH program and has direct responsibility for conventional and LASH vessel traffic movements. Niels M. Johnsen, 50, is Vice President of the Company. Mr. Johnsen has served as a director of the Company since April 1988. He joined Central Gulf on a full time basis in 1970 and held various positions with the Company before being named Vice President in 1986. He is also President of Waterman Steamship Corporation and N. W. Johnsen & Co., Inc., subsidiaries of the Company engaged in LASH liner service and ship and cargo charter brokerage, respectively. He is the son of Niels W. Johnsen. Erik L. Johnsen, 38, is Vice President of the Company. He joined Central Gulf in 1979 and held various positions with the Company before being named Vice President in 1987. He is responsible for all operations of the Company's vessel fleet and leads the Company's Ship Management Group. He is also President of Sulphur Carriers, Inc., a wholly-owned subsidiary of the Company. He is the son of Erik F. Johnsen. Gary L. Ferguson, 55, is Vice President and Chief Financial Officer of the Company. He joined Central Gulf in 1968 where he held various positions with the Company prior to being named Controller in 1977, and Vice President and Chief Financial Officer in 1989. David B. Drake, 40, is Treasurer of the Company. He joined Central Gulf in 1979 and held various positions prior to being named Treasurer in 1995. Laurance Eustis, 82, has served as a director of the Company since 1979. He is the Chairman of the Board of Eustis Insurance, Inc., mortgage banking and general insurance, located in New Orleans, Louisiana. Mr. Eustis is also a director of First Commerce Corporation, a bank holding company, and Pan American Life Insurance Company. Raymond V. O'Brien, Jr., 68, has served as a director of the Company since 1979. He is also a director of Emigrant Savings Bank. He served as Chairman of the Board and Chief Executive Officer of the Emigrant Savings Bank from January 1978 through December 1992. Edwin Lupberger, 59, has served as a director of the Company since April 1988. Mr. Lupberger is the Chairman of the Board, Chief Executive Officer and Director of Entergy Corporation and its wholly-owned subsidiaries. He also is a director of First Commerce Corporation, a bank holding company. Edward K. Trowbridge, 67, has served as a director of the Company since April 1994. He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July 1988 through November 1993. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The information called for by Item 5 is included in the 1995 Annual Report to Shareholders in the section entitled "Common Stock Prices and Dividends for Each Quarterly Period of 1994 and 1995" and is incorporated herein by reference to page 23 of Exhibit 13 filed with this 10-K. ITEM 6. SELECTED FINANCIAL DATA The information called for by Item 6 is included in the 1995 Annual Report to Shareholders in the section entitled "Summary of Selected Consolidated Financial Data" and is incorporated herein by reference to page 1 of Exhibit 13 filed with this 10-K. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information called for by Item 7 is included in the 1995 Annual Report to Shareholders in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference to pages 7 through 9 of Exhibit 13 filed with this 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated balance sheets as of December 31, 1995, and December 31, 1994, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1995 are included in the 1995 Annual Report to the Shareholders and are incorporated herein by reference to pages 10 through 14 of Exhibit 13 filed with this 10-K. Such statements have been audited by Arthur Andersen LLP, independent public accountants, as set forth in their report included in such Annual Report and incorporated herein by reference to page 24 of Exhibit 13 filed with this 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information called for by Item 10 is incorporated herein by reference to Item 4a, Executive Officers and Directors of the Registrant. ITEM 11. EXECUTIVE COMPENSATION The information called for by Item 11 is included on pages 7, 8 and 9 of the Company's definitive proxy statement dated March 12, 1996, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information called for by Item 12 is included on pages 2, 3, 4 and 5 of the Company's definitive proxy statement dated March 12, 1996, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information called for by Item 13 is included on pages 2, 3, 4, 5 and 9 of the Company's definitive proxy statement dated March 12, 1996, filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K The following financial statements, schedules and exhibits are filed as part of this report: (a) 1. FINANCIAL STATEMENTS The following financial statements and related notes are included in the Company's 1995 Annual Report to Shareholders and are incorporated herein by reference to pages 10 through 24 of Exhibit 13 filed with this 10-K. Consolidated Balance Sheets at December 31, 1995 and 1994 Consolidated Statements of Income for the years ended December 31, 1995, 1994, and 1993 Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 1995, 1994 and 1993 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 Notes to Consolidated Financial Statements Report of Independent Public Accountants 2. FINANCIAL STATEMENT SCHEDULES None. 3. EXHIBITS (3) Restated Certificate of Incorporation, as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference) (4) Specimen of Common Stock Certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980 and incorporated herein by reference) (4.1) Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No. 33-62168) and incorporated herein by reference). (4.2) Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference). (11) Statement regarding Computation of Earnings per Share (13) 1995 Annual Report to Shareholders (21) Subsidiaries of International Shipholding Corporation (b) The Company filed a form 8-K Current Report dated November 16, 1995, which reported under Item 5 the sale of their interest of approximately 8% in Havtor AS, a publicly listed company on the Oslo Stock Exchange. No financial statements were filed with the Report. (c) The Index of Exhibits and required Exhibits are included following the signatures beginning at page 26 of this Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INTERNATIONAL SHIPHOLDING CORPORATION (Registrant) /S/Gary L. Ferguson March 25, 1996 By ______________________________ Gary L. Ferguson Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. INTERNATIONAL SHIPHOLDING CORPORATION (Registrant) /S/Niels W. Johnsen March 25, 1996 By ____________________________ Niels W. Johnsen Chairman of the Board, Director and Chief Executive Officer /S/Erik F. Johnsen March 25, 1996 By _____________________________ Erik F. Johnsen President and Director /S/Harold S. Grehan, Jr. March 25, 1996 By _____________________________ Harold S. Grehan, Jr. Vice President and Director /S/Niels M. Johnsen March 25, 1996 By _____________________________ Niels M. Johnsen Vice President and Director /S/Erik L. Johnsen March 25, 1996 By _____________________________ Erik L. Johnsen Vice President and Director /S/Gary L. Ferguson March 25, 1996 __________________________ Gary L. Ferguson Vice President and Chief Financial Officer /S/Laurance Eustis March 25, 1996 By __________________________ Laurance Eustis Director /S/Raymond V. O'Brien, Jr. March 25, 1996 By __________________________ Raymond V. O'Brien, Jr. /S/Edwin Lupberger March 25, 1996 By __________________________ Edwin Lupberger Director /S/Edward K. Trowbridge March 25, 1996 By ____________________________ Edward K. Trowbridge Director /S/Deanie E. Jones March 25, 1996 By _____________________________ Deanie E. Jones Chief Accounting Officer INTERNATIONAL SHIPHOLDING CORPORATION EXHIBIT INDEX
Page Exhibit Number ------- ------- (3) Restated Certificate of Incorporation, as amended, and as amended, and By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3 to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference) -- (4) Specimen of Common Stock certificate (filed as an exhibit to the Company's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980 and incorporated herein by reference) -- (4.1)Form of Indenture between the Company and the Bank of New York, as Trustee, with respect to 9% Senior Notes due July 1, 2003 (filed as Exhibit 4(c) to Amendment No. 1 to the Company's Registration Statement on Form S-2 (Registration No.33-62168) and incorporated herein by reference). -- (4.2)Form of 9% Senior Note due July 1, 2003 (included in Exhibit (4.1) hereto and incorporated herein by reference. -- (11) Statement Regarding Computation of Earnings Per Share -- (13) 1995 Annual Report to Shareholders -- (22) Subsidiaries of International Shipholding Corporation --
EX-13 2 INTERNATIONAL SHIPHOLDING CORPORATION SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA (All Amounts in Thousands Except Share, Per Share Data and Ratios) Consistent Operating Results ($ In Millions)
OPERATING YEAR EBITDA* INCOME - - ---- ------ --------- 1989 61.8 31.4 1990 73.0 34.9 1991 73.5 33.5 1992 75.2 30.9 1993 81.2 36.5 1994 79.5 37.9 1995 81.9 37.9
The following summary of selected consolidated financial data is not covered by the auditors' report appearing elsewhere herein. However, in the opinion of management the summary of selected consolidated financial data includes all adjustments necessary for a fair representation of each of the years presented. This summary should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report.
Year Ended December 31, 1995 1994 1993 1992 1991 ------------------------------------------------- INCOME STATEMENT DATA: Revenues $ 341,789 $ 342,333 $ 341,651 $ 324,608 $ 328,429 Gross Voyage Profits $ 64,536 $ 65,315 $ 64,318 $ 57,581 $ 61,303 Operating Income $ 37,921 $ 37,861 $ 36,486 $ 30,935 $ 33,457 Income Before Extraordinary Item and Cumulative Effect of Accounting Change $ 20,980 $ 13,051 $ 7,645 $ 6,499 $ 15,233 Extraordinary Item - - $ (1,716) - - Cumulative Effect of Accounting Change - - - $ (3,218) - Net Income $ 20,980 $ 13,051 $ 5,929 $ 3,281 $ 15,233 Earnings Per Common and Common Equivalent Shares: Before Extraordinary Item and Cumulative Effect of Accounting Change $ 3.14 $ 1.95 $ 1.01 $ 0.77 $ 2.13 Extraordinary Item - - $ (0.26) - - Cumulative Effect of Accounting Change - - - $ (0.50) - Net Income $ 3.14 $ 1.95 $ 0.75 $ 0.27 $ 2.13 * Earnings Before Interest, Taxes, Depreciation and Amortization $ 81,877 $ 79,482 $ 81,166 $ 75,209 $ 73,482 BALANCE SHEET DATA: Working Capital $ 13,407 $ 16,819 $ 17,649 $ 7,920 $ 28,327 Total Assets $ 647,580 $ 547,091 $ 531,372 $ 519,963 $ 496,994 Long-Term Debt (including Capital Lease Obligations) $ 289,495 $ 251,944 $ 240,132 $ 231,148 $ 200,472 Redeemable Preferred Stock - - - $ 13,548 $ 13,290 Common Stockholders' Investment $ 166,261 $ 146,316 $ 134,497 $ 124,004 $ 123,408 Ratio of Long-Term Debt and Capital Lease Obligations to Common Stockholders' Investment 1.74:1 1.72:1 1.79:1 1.86:1 1.62:1 Ratio of Long-Term Debt to Earnings Before Interest, Taxes, Depreciation and Amortization 3.54:1 3.17:1 2.96:1 3.07:1 2.73:1 Long-Term Debt as a Percentage of Sum of Long-Term Debt, Redeemable Preferred Preferred Stock and Common Stockholders' Investment 64% 63% 64% 63% 59% OTHER DATA: Cash Dividends Per Common Share $ 0.1825 $ 0.16 $ 0.16 $ 0.16 $ 0.16 Weighted Average of Common and Common Equivalent Shares: 6,682,887 6,682,887 6,525,259 6,423,583 6,406,933
[FN] All per share and weighted average share amounts have been restated for November 17, 1995 twenty-five percent stock dividend. TO THE SHAREHOLDERS Net profit for the fourth quarter ended December 31, 1995 was $14.845 Million or $2.23 per share compared to a net profit in the fourth quarter 1994 of $3.715 Million or $0.69 per share ($.55 per share after restatement for 25% stock Dividend). For the twelve months ended December 31, 1995, net profit was $20.980 Million or $3.14 per share compared with a net profit of $13.051 Million or $2.44 per share ($1.95 per share after restatement for 25% stock dividend) for the twelve months ended December 31, 1994. The fourth quarter 1995 and twelve months 1995 reflect an after tax gain of $11.3 Million on the sale of our 8% interest in Havtor A/S, a Norwegian shipowning company acquired by another Norwegian shipowner in an expansion of its interests in Liquified Petroleum Gas Carriers. The proceeds from this sale are available for reinvestment or retiring debt. Aside from the gain on the sale of Havtor A/S shares, our operating income for the year ended December 31, 1995 was $37.921 Million compared to $37.861 Million in 1994, $36.5 Million in 1993, $30.9 Million in 1992 and $33.5 Million in 1991. For the last five years, our Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) have run from $73.5 Million to $81.9 Million (average of $78.26 Million) providing conservative coverage for debt service. The book equity of the Company has grown from $123.408 Million in 1991 to $166.261 Million in 1995. Our conservative approach in the market place has enabled us to report 45 consecutive quarters without a loss. Forest Lines Trans-Atlantic LASH service completed another good year. If cargo offerings continue at the current favorable level, we expect to be able to add a third LASH vessel to the service by mid-year 1996. Waterman service between U.S. Gulf and Atlantic ports and South Asia had a down year in 1995, but a notable improvement in the fourth quarter. Freight rates have now increased slightly for some Eastbound cargoes along with better volume. We look forward to somewhat improved results for this service in 1996. During 1995, we continued our LASH vessels and two Multi-Purpose Ice-Strengthened vessels on medium term charters to the Military Sealift Command (MSC). Also, three RO/RO vessels continued to operate on long-term charter to MSC. Results were satisfactory. One of the Ice- Strengthened vessels, the "GREEN RIDGE", was redelivered at year's end and is now employed in the carriage of general cargo in the Atlantic Ocean area. We are now reviewing future employment opportunities for the two LASH vessels whose charters expire in May, 1996. They are potential candidates for renewal of charters with MSC and/or deployment in one of our other services. Our Cape-Size Bulk carrier, "AMAZON", was redelivered from a time charter in January, 1996 and is now employed carrying grain in the spot market. Freight rates in the bulk carrier markets have recently become depressed. We intend to utilize the "AMAZON" on short voyages until freight rates increase. The four specialized Car Carriers in our fleet continue to operate successfully on long-term charters to major Japanese and South Korean car manufacturers. The M.V. "SULPHUR ENTERPRISE" as of the end of 1995 has made 100 trips carrying a total of about 2.4 Million tons of molten sulphur since her delivery from the shipbuilders in October, 1994. She is performing under a long-term contract with a major mineral resource company. The M.V. "BALI SEA" and M.V. "BANDA SEA", two Float- On/Float-Off Heavy Lift vessels, together with 26 Special Purpose Barges, were all delivered to one of our subsidiary companies from Far Eastern shipyards between August, 1995 and December, 1995. These vessels have now begun service as of December, 1995, under a long-term contract providing ocean transportation of supplies to a large mining operation on Irian Jaya, Indonesia, from various ports in the South Pacific area. The S.S. "ENERGY ENTERPRISE", a 38,164 long ton deadweight capacity conveyor-belt equipped coal carrier finally completed shipyard work on February 6, 1996, shifted to Newport News, Virginia, and loaded her first coal cargo under our ownership and charter to a New England electric utility company. She thereby began employment under a 15- year charter carrying coal in the coastwise and near-sea trade. From time to time during this charter period, she will also perform service for other customers. During 1995, our river barge system carried a total of 3,200,000 tons of coal from loading points on the Ohio River to Florida via the Mississippi River Intracoastal Waterways and our coal transfer facility in Gulf County, Florida. After completion of the merger of Havtor A/S with Kvaerner Industries reported in our 1994 Annual Report, a further merger of the combined companies was effected with Bergesen A/S, another large Norwegian shipowning company. The surviving company, Bergesen, is now the world's largest owner of Liquified Petroleum Gas (LPG) Carriers in addition to a substantial fleet of Oil Tankers, a total of sixty-six (66) LPG Carriers and twenty (20) VLCC and ULCC Tankers. We accepted cash for our shares of Havtor A/S as reported above. 1995 was a relatively good year in the international dry bulk cargo markets. Rates peaked at highest level achieved in recent years in May; but as the year unfolded , rates began to decline. New large bulk carriers entered the market from Far Eastern shipyards before a sufficient number of obsolete vessels were sold for demolition. A total of about 16.8 million deadweight tons of ships were sold for demolition during the year, about 3.6 million deadweight tons less than 1994. Of the tonnage sold for scrapping in 1995, 12.3 million deadweight tons were tankers and combination carriers. The balance were dry cargo carriers, much less than necessary to offset newbuilding deliveries. As the new year begins, the dry bulk cargo markets enter another down cycle particularly for Cape-Size bulk carriers. The outlook, therefore, is for depressed freight rates for the rest of 1996 until more of the older ships are scrapped and cargo volumes increase to absorb scheduled newbuildings. However, lower freight rates should encourage older bulk carriers to be sold for scrapping. Since almost all of our business is medium to long-term contracts or market share in dedicated trades, we are not seriously impacted by the fluctuating bulk cargo markets. We, therefore, expect to ride out the 1996 depressed bulk market while expecting an upturn in 1997. In the meantime, the Company's strong financial position will enable it to take advantage of investing in new projects meeting our policy goals. At a regular meeting on January 24, 1996, the Board of Directors declared a quarterly dividend of $.0625 per share payable on March 15, 1996 to shareholders of record on March 1, 1996. Previously , the Board authorized a 25% stock dividend paid on November 17, 1995 and increased the quarterly dividend rate payable December 15, 1995 to the new rate of $.0625 per share. /s/Niels W. Johnsen Niels W. Johnsen Chairman /s/Erik F. Johnsen Erik F. Johnsen President INTERNATIONAL SHIPHOLDING CORPORATION REVIEW OF OPERATIONS International Shipholding Corporation, through its subsidiaries and associates, is engaged in various types of waterborne freight transportation-LASH (for Lighter Aboard Ship) carriage, Pure Car Carrier services, roll-on/roll-off, breakbulk and bulk carrier services, inland vessel and barge transportation-with emphasis on medium to long-term contracts and charters. The Company has offices in New York, New Orleans, Washington, D.C., and Houston, and maintains a network of marketing agents in major cities worldwide. Principal subsidiaries of the Company include Central Gulf Lines, Inc., Waterman Steamship Corporation, Forest Lines Inc., and LCI Shipholdings, Inc., who together operate a fleet of 29 modern vessels. LASH-The Company placed the world's first two LASH vessels in operation in 1969 and 1970, and has continued as a leading owner and operator of this type of ocean transportation. The Company's LASH system operations consist of 10 large ocean carriers, three ocean towed feeder LASH vessels, one self-propelled feeder LASH vessel, and a fleet of 1,650 LASH barges. The large LASH vessels each carry between 83 and 89 LASH barges and utilize additional spaces aboard ship for cargo not loaded into barges. The barges, all of a standard size with cargo capacity of 375 tons, are towed in ports and on inland waterways to various shipping points where they are loaded with cargo and returned to the ocean going vessel. They are hoisted aboard by a special ship-board gantry-type crane and transported overseas where the process is reversed. The LASH ships do not require special docks or terminals, and are generally worked at anchor in river, roadsteads and light traffic port areas. LASH cargo rarely requires transshipment, moving from origin to destination under one bill of lading. Waterman Steamship Corporation operates four of the large U.S. Flag LASH vessels on subsidized liner service between the U.S. Gulf and Atlantic coasts and the Middle East, East Africa, the Indian Sub-Continent, and southeast Asia. A variety of general, bulk and project cargo is transported outbound, while large amounts of rubber, coffee and general cargo are carried inbound. Waterman also operates a fifth large U.S. Flag LASH vessel under charter to the U.S. Navy's Military Sealift Command (MSC). Two of the Company's large international flag LASH vessels are being operated in the Trans-Atlantic service by the Company's subsidiary, Forest Lines Inc. Outbound the vessels carry a variety of cargoes and have medium to long- term contracts with several major shippers; inbound they carry various general cargoes, primarily steel, from European ports to the United States. Central Gulf Lines, Inc. operates the other three large U.S. Flag LASH vessels under time charters to the Military Sealift Command. FLASH-The three 8-LASH barge capacity, ocean towed, float- on/float-off feeder LASH (FLASH) units are being operated between various southeast Asian ports as an integral part of the Waterman service. DOCKSHIP-The 15-LASH barge capacity float-on/float-off DOCKSHIP is being operated in conjunction with Forest Lines' Trans-Atlantic LASH service to facilitate movement of LASH barges between European ports. PURE CAR CARRIERS-Central Gulf Lines, Inc. continued the operation during 1995 of its two U.S. Flag Pure Car Carriers, M/V "GREEN LAKE" and M/V "GREEN BAY", under contracts with Toyota Motor Corporation and Honda Motor Co., Ltd. to transport automobiles between Japan and North America. The Company, through its LCI Shipholdings, Inc. subsidiary, also continued the operation of its two 4,800- car capacity Pure Car Carriers, M/V "CYPRESS PASS" and M/V "CYPRESS TRAIL", transporting automobiles from the Far East to the United States and Europe for the account of Hyundai. BREAKBULK SERVICES-The Company's U.S. Flag Semi-Submersible Barge (SSB), "CAPS EXPRESS", is being operated in the open market on a cargo offered basis. ROLL-ON/ROLL-OFF SERVICES-The Company, through its Waterman Steamship Corporation subsidiary, is operating three modern U.S. Flag Roll-On/Roll-Off vessels, S.S. "SGT. MATEJ KOCAK", S.S. "PFC. E.A. OBREGON", AND S.S. "MAJ. S.W. PLESS", under long-term charters to the Military Sealift Command. ICE STRENGTHENED MULTI-PURPOSE VESSELS-During 1995 the Company's two U.S. Flag Ice Strengthened Multi-Purpose vessels, M/V "GREEN WAVE" and M/V "GREEN RIDGE", continued to be operated under medium term charters to the Military Sealift Command. The "GREEN RIDGE" was redelivered from its MSC charter in December 1995, and is currently employed in the carriage of general cargo. CAPE-SIZE BULK CARRIER-The Company's 148,000 DWT. Cape-Size Bulk Carrier, M/V "AMAZON", was redelivered from a time charter in January, 1996 and is now employed in the spot market carrying grain. SULPHUR CARRIER-The M/V "SULPHUR ENTERPRISE" continued to carry molten sulphur from Louisiana to U.S. Gulf ports under its long-term contract with a large mineral resource company. FLOAT-ON/FLOAT-OFF SPECIAL PURPOSE VESSEL (SPV)-The Company in 1995 acquired two semi-submersible barge-carrying vessels and had them converted to carry newbuilt special purpose barges under a long-term contract with a major copper and gold mining company to provide ocean transportation of supplies to its mining operation in Indonesia. The two Float-On/Float-Off SPV's, renamed M/V "BALI SEA" and M/V "BANDA SEA", together with 26 special purpose barges, commenced work on the contract in December, 1995. COAL CARRIER-The Company took title in September of 1995 to the S.S. "ENERGY INDEPENDENCE", a self-unloading, conveyor- belt equipped U.S. Flag Coal Carrier eligible for U.S. domestic trade. The 38,164 DWT, vessel, renamed "ENERGY ENTERPRISE", completed shipyard work and commenced service in February, 1996 under a long-term charter to a New England electric utility company, carrying coal in the coastwise and near-sea trade. FLEET STATISTICS
Total Dead- Total Dead- Weight Carrying Weight Carrying Owned vessels Number Capacity (ea.) Capacity - - ---------------------------------------------------------- LASH 3 47,500 L.T. 142,500 L.T. LASH 6 46,150 276,900 LASH 1 39,493 39,493 PURE CAR CARRIERS 2 10,500 21,000 PURE CAR CARRIERS 2 12,700 25,400 FLASH 3 3,600 10,800 DOCKSHIP 1 6,800 6,800 RO/RO 3* 25,476 76,428 ICE STRENGTHENED MULTI-PURPOSE 2 12,820 25,640 CAPE-SIZE BULK CARRIER 1 148,000 148,000 MOLTEN SULPHUR CARRIER 1 29,000 29,000 SEMI-SUBMERSIBLE BARGE (SSB) 1 14,894 14,894 FLOAT-ON/FLOAT- OFF SPECIAL PURPOSE VESSELS (SPV) 2 21,880 43,760 COAL CARRIER 1 38,164 38,164 JUMBO RIVER BARGES 111* 3,100 344,100 RIVER BARGES 18 1,500 27,000 - - ------------------------------------------------- FLEET CAPACITY - 1995 1,269,879 VESSELS 29* LASH BARGES 1,650* RIVER BARGES 129* SPECIAL PURPOSE BARGES 26 TOWBOATS 15* *Includes leased equipment. DOMESTIC TRANSPORTATION-Central Gulf Lines, Inc. has a long- term contract with a Florida based electric utility for the transportation of coal from Mt. Vernon, Indiana to the Company's coal transfer facility at Port St. Joe, Florida, where the coal is trans-loaded into railcars and moved to the utility's plant site at Palatka, FL. The Company is responsible for the waterborne movement of the coal from the loading point on the Ohio River to the discharge point at the terminal and for unloading the barges there and transferring the coal into railcars. The Company operates 111 hopper barges, 15 towboats and certain terminal transfer equipment in carrying out the requirements of the contract. LITCO TERMINAL COMPLEX-The Company's LITCO (LASH Intermodal Terminal Company) Terminal at Memphis is in its fourth year of operation and has continued to experience satisfactory utilization. The terminal is the only totally enclosed multi-modal cargo transfer facility in the United States, providing 287,000 sq. ft. of enclosed warehouse and loading/discharging stations for LASH barge, rail, truck, and heavy-lift operations. LITCO is strategically located to move cargo on just-in- time scheduling between major inland markets and world ports, and is contributing positively to the performance of both Forest Lines and Waterman services by improved turn- around time of the Company's LASH barge fleet. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's vessels are operated under a variety of charters and contracts. The nature of these arrangements is such that, without a material variation in gross voyage profits (total revenues less voyage expenses and vessel and barge depreciation), the revenues and expenses attributable to a vessel deployed under one type of charter or contract can differ substantially from those attributable to the same vessel if deployed under a different type of charter or contract. Accordingly, depending on the mix of charters or contracts in place during a particular accounting period, the Company's revenues and expenses can fluctuate substantially from one period to another even though the number of vessels deployed, the number of voyages completed, the amount of cargo carried and the gross voyage profit derived from the vessel remain relatively constant. As a result, fluctuations in voyage revenues and expenses are not necessarily indicative of trends in profitability, and management believes that gross voyage profit is a more appropriate measure of operating performance than revenues. Accordingly, the discussion below addresses variations in gross voyage profits rather than variations in revenues. RESULTS OF OPERATIONS Year ended December 31, 1995 Compared to Year Ended December 31, 1994 GROSS VOYAGE PROFIT. Gross voyage profit decreased 12% to $64.5 million in 1995 as compared to $65.3 million in 1994. Gross voyage profit was negatively impacted by lower freight rates and higher operating costs for the Company's LASH vessels employed in liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17). Also impacting 1995 results was a scheduled rate reduction on one of the Company's vessels chartered to the Military Sealift Command (the "MSC"). Partially offsetting these reductions was the addition of a molten sulphur carrier in early fourth quarter of 1994. The Company currently charters eight vessel to the MSC. A new charter with an initial period of seventeen months with two seventeen month option periods began in early 1995 for one of the Company's LASH vessels. During 1995, the MSC exercised the second of two seventeen month option periods which extends through early 1997 on another of the Company's LASH vessels. The two remaining LASH vessels on charter to the MSC are operating under charters which expire in mid- 1996 and future employment opportunities for these vessels are being reviewed. During 1995, the MSC also exercised the first of two seventeen month option periods on one of the Company's two ice strengthened multi-purpose vessels which extends into mid-1996. The MSC did not exercise its option to renew the charter of the Company's other ice strengthened multi-purpose carrier when it expired in late 1995. This vessel is now being operated in the open market on a cargo offered basis. The three Roll-On/Roll-Off vessels on charter to the Military Prepositioning Service are fixed on MSC charters that will terminate in the years 2009 and 2010. Vessel and barge depreciation increased by 6.3% to $24.7 million during 1995 as compared to $23.3 million in 1994 primarily due to the addition of a molten sulphur carrier in early fourth quarter of 1994. This increase was partially offset by the life extension of two LASH vessels which were purchased in 1994 upon the termination of the capital lease of these vessels. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased 2.7% to $26.6 million during 1995 as compared to $27.4 million in 1994 stemming from a continuing cost reduction program. Interest expense increased 18.1% to $25.6 million in 1995 as compared to $21.7 million in 1994 primarily due to interest incurred on the following: the financing of a molten sulphur carrier that delivered in October 1994, interest rate conversion agreements, and financing received in early 1995 for general corporate purposes in the amount of $12.0 million. This increase was partially offset by regularly scheduled debt payments of $28.5 million. Investment income decreased slightly from $2.8 million in 1994 to $2.7 million in 1995 reflecting a reduction in the average balance of invested funds. Additionally, investment income in 1994 reflected the recognition of interest on a promissory note related to the sale of an investment in an unconsolidated entity. This promissory note was acquired by the Company in the first half of 1995. The Company's equity in net income of unconsolidated entities was $0.3 million in 1995 as compared to equity in losses of $0.1 million in 1994. The Company's interest in these entities was liquidated in 1995. As of December 31, 1994, the Company held an approximate 12.6% interest including both direct and indirect interests in Havtor AS, a publicly listed company on the Oslo Stock Exchange. The Company also held a 14.2% interest in A/S Havtor Management, a privately held Norwegian ship management company affiliated with Havtor AS. As of December 31, 1994, the Company held a 50% interest in a foreign entity, Bulkowner's 1984, which was formed to own and operate two combination dry cargo/petroleum products, PROBO vessels. The Company also held a 10% interest in a limited partnership with certain Norwegian interests to construct and own a Liquified Petroleum Gas carrier which delivered in 1993. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company, merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and the 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to the merger, the Company's interest including both direct and indirect interests in Havtor AS approximated 7.7%. During November 1995 the Company sold this 7.7% interest in Havtor AS for approximately $48 million. The sale resulted in a before tax gain of approximately $17 million. INCOME TAXES. The Company provided $11.4 million and $6.6 million for Federal income taxes at the statutory rate of 35% for 1995 and 1994, respectively. Income of unconsolidated entities is shown net of applicable taxes. Year Ended December 31, 1994 Compared to Year Ended December 31, 1993 GROSS VOYAGE PROFIT. Gross voyage profit increased 1.6% to $65.3 million in 1994 as compared to $64.3 million in 1993. Positively affecting 1994 results were improved freight rates and increased volume in the Company's Trans- Atlantic LASH liner service. Also contributing to the increased gross voyage profit in 1994 was the addition in early fourth quarter of a newly built vessel employed carrying molten sulphur under a long-term contract with a major sulphur producer. Results for 1994 also reflected only 79 days out-of-service for drydocking, an unusually low number, as compared to 292 days in 1993. These increases were partially offset by reduced freight rates on the Eastbound leg of the Company's LASH vessels employed in liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17). Also impacting 1994 results were scheduled reductions in rates earned on some of the Company's MSC charter operations, primarily reflecting negotiated adjustments for three Roll- On/Roll-Off vessels in consideration of fixing the period of these charter for the full 25 years. Scheduled rate reductions were also implemented upon the exercise of the first option periods for two LASH vessels. Vessel and barge depreciation decreased by 2.8% to $23.3 million during 1994 as compared to $23.9 million in 1993 primarily due to the life extension of two LASH vessels which were purchased in 1994 upon the termination of the capital lease of these vessels. The reduction was partially offset by the amortization of costs associated with the Company's barge refurbishment program and costs associated with upgrade work on a breakbulk vessel. OTHER INCOME AND EXPENSES. Administrative and general expenses decreased 3.0% to $27.4 million during 1994 as compared to $28.2 million in 1993. This reduction resulted primarily from the expensing in 1993 of approximately $1.0 million in costs that related to a proposed acquisition that was not consummated. Interest expense increased to $21.7 million in 1994 as compared to $21.2 million in 1993 primarily due to interest incurred on the Company's $100 million, 9% Senior Notes issued in July, 1993, interest incurred on the financing of a molten sulphur carrier that delivered in October 1994, and higher interest rates on variable rate loans. This increase was partially offset by regularly scheduled debt payments of $37.1 million in 1994 and prepayment of $58.9 million of debt during 1993 from the proceeds of the $100 million Senior Notes. Investment income increased from $1.7 million in 1993 to $2.8 million in 1994. This increase reflected higher interest rates earned on invested funds and the recognition of interest earned on a promissory note related to the sale of an 18.5% interest in A/S Havtor as further discussed below. Additionally impacting the favorable variance was a higher average balance of invested funds during 1994. The Company's equity in losses of unconsolidated entities decreased from $2.3 million in 1993 to $0.1 million in 1994, primarily resulting from the sale during 1994 of interests the Company held in A/S Havtor and A/S Havtor Management. During 1993 the Company sold an 18.5% direct interest in A/S Havtor for $7.6 million, of which $2.8 million was received in cash and $4.8 million was received in the form of a promissory note. The transaction reduced the Company's direct interest in A/S Havtor to 14.8% and resulted in a gain after taxes of approximately $.9 million. A provision for doubtful accounts was recorded in 1993 to reflect the deferral of the gain until receipt of the proceeds from the promissory note, which was scheduled to mature in mid-1996. In 1994, A/S Havtor and associated Norwegian companies merged with a publicly listed company the on Oslo Stock Exchange. This new public company, Havtor AS, operated mainly Liquified Petroleum Gas (LPG) carriers. In substitution for the A/S Havtor stock held as collateral under the aforementioned promissory note, shares of Havtor AS were pledged. Due to the liquidity and market value of these shares, deferral of the gain was no longer necessary; therefore during 1994 the related allowance was reversed resulting in income after tax of $0.9 million. INCOME TAXES. The Company provided $6.6 million for Federal income taxes at the statutory rate of 35% for both years 1994 and 1993. OPERATING DIFFERENTIAL SUBSIDY. For the years ended December 31, 1995, 1994 and 1993, the Company received aggregate operating differential subsidy payments of $22.7 million, $21.7 million and $19.3 million, respectively. The Company's subsidy agreement expires on December 31, 1996, and all other subsidy agreements with U.S. flag operators expire on December 31, 1997. It is not clear at this point whether the subsidies will be renewed. If the subsidy program is not renewed, the Company will be required to consider various options for its U.S. Flag vessels receiving operating differential subsidy, including vessel modifications that would increase fuel efficiency, reduction of crew size and wages to more closely approximate those of non-subsidized vessels, reduction of other operating expenses, and/or transfer to foreign flag operations with foreign crews. ____________________________________________________________ LIQUIDITY AND CAPITAL RESOURCES The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of the Company's Consolidated Financial Statements. The Company's working capital decreased from $16.8 million at December 31, 1994 to $13.4 million at December 31, 1995 after provision for current maturities of long-term debt of $40.8 million and capital lease obligations of $1.5 million. Cash and cash equivalents increased during 1995 by $24.7 million to a total of $54.3 million. Positive cash flows were achieved from operating activities during 1995 in the amount of $54.0 million. The major source of cash from operations was net income, adjusted for noncash provisions such as depreciation, amortization and gains and losses on the sale of assets. Net cash used for investing activities amounted to $79.2 million during 1995. Capital investments included $65.4 million for the purchase of a U.S. flag coal carrier, $53.6 million for the purchase and conversion of two semi- submersible vessels and related cargo barges, $2.6 million for upgrades to information systems, $2.6 million for the purchase of a towboat and $3.7 million in other miscellaneous items. Also, the Company added $11.7 million of deferred charge items, primarily drydocking and vessel survey expenditures. The Company received approximately $48.6 million from the sale of the Company's interest in Havtor AS and $2.8 million from the liquidation of securities. Net cash used for other investing activities amounted to $9.1 million and included $3.1 million previously placed in escrow for the purchase of a coal carrier which was delivered in 1995 and $5.6 million previously held as collateral for a letter of credit related to the construction of 26 barges which were delivered in 1995. Net cash provided by financing activities amounted to $49.9 million. Proceeds from the issuance of debt obligations of $105.7 million included $50.0 million received from a medium-term loan used for the purchase of a U.S. flag coal carrier, $29.2 million received from a long- term loan associated with the acquisition and conversion of two semi-submersible barge carrying vessels and related cargo barges, $14.5 million drawn under lines of credit, and $12.0 million from a medium-term loan which was used for general corporate purposes. These proceeds were partially offset by regularly scheduled principal payments of $28.5 million and repayment of $24.5 million drawn under lines of credit and $0.9 million to prepay a portion of the Senior Notes issued in 1993. The Company also added $0.6 million in deferred financing charges. Additionally, $1.2 million was used to meet common stock dividend requirements. The Company has entered into a long-term contract to provide ocean transportation services to a major mining company producing copper concentrates at its mine in West Irian Jaya, Indonesia. The Company has acquired two semi- submersible barge carrying vessels and constructed 26 cargo barges to be used with the aforementioned vessels. The cost of these capital expenditures is expected to approximate $80.1 million of which $55.6 million was paid during 1995. The remaining $24.5 million will be paid during 1996 with a major portion to be financed through a long-term loan from commercial banks on a variable rate basis. During the third quarter of 1995, the Company acquired a U.S. Flag Coal Carrier at which time the vessel entered a shipyard to undergo work to meet classification requirements and for preventative maintenance. The vessel completed shipyard work in early 1996 and began employment under a 15 year charter carrying coal in the coastwise and near-sea trade and from time to time during this charter period will also perform service for other customers. The Company obtained medium-term financing on a variable rate basis with a commercial bank for $50 million to cover a major portion of the combined cost of the acquisition and subsequent shipyard requirement totaling approximately $73 million. In late 1995, the Company received a commitment for long-term refinancing of the $50 million through the private placement market at more favorable terms. In the third quarter of 1988, the Board of Directors declared a quarterly dividend of $.05 per share and has continued quarterly dividends in the same amount for each quarterly period through the third quarter of 1995. The Board increased the dividend to $.0625 per share in the fourth quarter of 1995 and has expressed its intent to continue to declare similar quarterly dividends in the future, subject to the ability of the Company's operating subsidiaries to continue to achieve satisfactory earnings. During fourth quarter of 1995, the Company distributed a twenty-five percent stock split effected in the form of a stock dividend. Cash dividends on common stock during 1995 amounted to approximately $1.2 million. The Financial Accounting Standards Board issued Statement No. 121, "Accounting for the Impairment of Long- Lived Assets and for Long-Lived Assets to Be Disposed Of", during 1995. This statement requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Measurement of the impairment loss should be based on the fair value of the asset. Adoption of the statement, which is required in 1996, is not anticipated to have a material effect on the Company's financial position or results of operations. However, there can be no assurance that current circumstances and market values of the Company's long-lives assets will not change. Management believes that normal operations will provide sufficient working capital and cash flows to meet debt service and dividend requirements during the foreseeable future. To meet short-term requirements when fluctuations occur in working capital, the Company has available four lines of credit totaling $35 million, none of which were drawn as of December 31, 1995. The Company has not been notified that it is a potentially responsible party in connection with any environmental matters.
INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED BALANCE SHEETS (All Amounts in Thousands)
December 31, December 31, ASSETS 1995 1994 ------------ ------------ Current Assets: Cash and Cash Equivalents $ 54,281 $ 29,611 Marketable Securities 4,630 7,096 Accounts Receivable, Net of Allowance for Doubtful Accounts of $409 and $404 in 1995 and 1994, Respectively: Traffic 30,659 28,952 Agents' 10,352 10,087 Claims and Other 5,823 7,805 Net Investment in Direct Financing Leases 2,104 2,186 Other Current Assets 3,521 3,847 Material and Supplies Inventory, At Cost 10,545 8,954 ------- ------- Total Current Assets 121,915 98,538 ------- ------- Investments in and Advances to Unconsolidated Entities: At Cost - 13,152 At Equity - 20,008 ------- ------- - 33,160 ------- ------- Net Investment in Direct Financing Leases 24,482 26,588 ------- ------- Vessel, Property and Other Equipment, At Cost: Vessels and Barges 634,905 481,814 Other Marine Equipment 7,570 7,745 Terminal Facilities 18,126 17,925 Land 2,317 2,317 Furniture and Equipment 15,892 13,056 ------- ------- 678,810 522,857 Less - Accumulated Depreciation (243,929) (214,395) -------- -------- 434,881 308,462 -------- -------- Other Assets: Deferred Charges in Process of Amortization 26,952 30,613 Acquired Contract Costs, Net of Accumulated Amortization of $16,496 and $14,044 in 1995 and 1994, Respectively 21,733 24,185 Due from Related Parties 535 6,174 Other 17,082 19,371 ------- ------- 66,302 80,343 ------- ------- $ 647,580 $ 547,091 ======= =======
[FN] The accompanying notes are an integral part of these statements.
LIABILITIES AND STOCKHOLDERS' INVESTMENT (ALL AMOUNTS IN THOUSANDS EXCEPT SHARE DATA) December 31, December 31, 1995 1994 ------------ ------------ Current Liabilities: Current Maturities of Long-Term Debt $ 40,785 $ 26,755 Current Maturities of Capital Lease Obligations 1,469 1,329 Accounts Payable and Accrued Liabilities 77,481 53,061 Federal Income Tax Payable 6,520 260 Current Deferred Income Tax Liability 1,283 314 Current Liabilities to be Refinanced (19,030) - -------- ------- Total Current Liabilities 108,508 81,719 -------- ------- Current Liabilities to be Refinanced 19,030 - -------- ------- Billings in Excess of Income Earned and Expenses Incurred 4,639 4,471 -------- ------- Long-Term Capital Lease Obligations, Less Current Maturitites 19,623 21,092 -------- ------- Long-Term Debt, Less Current Maturities 269,872 230,852 -------- ------- Reserves and Deferred Credits: Deferred Income Taxes 38,668 39,414 Claims and Other 20,979 23,227 ------- ------- 59,647 62,641 ------- ------- Stockholders' Investment: Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized, 6,756,330 and 5,405,366 Shares Issued at December 31, 1995 and 1994, Respectively 6,756 5,405 Additional Paid-in Capital 54,450 54,450 Retained Earnings 106,158 87,757 Less - 73,443 and 58,755 Shares of Common Stock in Treasury, at cost, at December 31, 1995 and 1994, Respectively (1,133) (1,133) Unrealized Holding Gain (Loss) on Marketable Securities 30 (163) ------- ------- 166,261 146,316 ------- ------- $ 647,580 $ 547,091 ========= ==========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF INCOME
(All Amounts in Thousands Except Per Share Data) Year Ended December 31, 1995 1994 1993 --------- --------- --------- Revenues $ 319,084 $ 320,585 $ 322,313 Operating Differential Subsidy 22,705 21,748 19,338 --------- --------- --------- 341,789 342,333 341,651 --------- --------- --------- Operating Expenses: Voyage Expenses 252,506 253,729 253,386 Vessel and Barge Depreciation 24,747 23,289 23,947 --------- --------- --------- Gross Voyage Profit 64,536 65,315 64,318 --------- --------- --------- Administrative and General Expenses 26,622 27,371 28,206 Gain(Loss) on Sale of Assets 7 (83) 374 --------- --------- --------- Operating Income 37,921 37,861 36,486 --------- --------- --------- Interest: Interest Expense 25,561 21,650 21,245 Investment Income (2,676) (2,826) (1,748) --------- --------- --------- 22,885 18,824 19,497 --------- --------- --------- Gain on Sale of Investments 17,409 - - --------- --------- --------- Unconsolidated Entities (Net of Applicable Taxes): Equity in Net Income (Loss) of Unconsolidated Entities 331 (124) (2,289) Gain on Sale of Equity Interests - - 900 Provision for Doubtful Accounts - 900 (900) --------- --------- --------- 331 776 (2,289) --------- --------- --------- Income Before Provision for Income Taxes and Extraordinary Item 32,776 19,813 14,700 --------- --------- --------- Provision for Income Taxes: Current 11,296 4,961 714 Deferred 94 1,621 5,851 State 406 180 490 --------- --------- --------- 11,796 6,762 7,055 --------- --------- --------- Income Before Extraordinary Item $ 20,980 $ 13,051 $ 7,645 --------- --------- --------- Extraordinary Loss on Early Extinguishment of Debt (Net of Income Tax Benefit of $924) - - (1,716) --------- --------- --------- Net Income $ 20,980 13,051 5,929 Less: Preferred Stock Dividends - - 868 Accretion of Discount on Preferred Stock - - 202 --------- --------- --------- Net Income Applicable to Common and Common Equivalent Shares $ 20,980 $ 13,051 $ 4,859 ========= ========= ========= Earnings Per Share: Income Before Extraordinary Loss $ 3.14 $ 1.95 $ 1.01 Extraordinary Loss $ - $ - $ (0.26) --------- --------- --------- Net Income $ 3.14 $ 1.95 $ 0.75 ========= ========= =========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
Net (All Amounts in Additional Unrealized Thousands Except Common Paid-In Retained Treasury Holding Share Data) Stock Capital Earnings Stock Gain/(Loss) Total ----------------------------------------------------- Balance at December 31,1992 $4,978 $48,216 $71,943 ($1,133) $ - $124,004 Net Income for Year Ended December 31, 1993 - - 5,929 - - 5,929 Preferred Stock Dividends - - (868) - - (868) Accretion of Discount on Preferred Stock - - (202) - - (202) Cash Dividends - - (1,027) - - (1,027) Issuance of Stock, 427,500 Shares Pursuant to Exercise of Warrants 427 6,234 - - - 6,661 ------ ------- ---------- -------- ----------- -------- Balance at December 31,1993 $5,405 $54,450 $ 75,775 ($ 1,133) $ - $134,497 ====== ======= ========== ========= ========== ======== Net Income for Year Ended December 31, 1994 - - 13,051 - - 13,051 Cash Dividends - - (1,069) - - (1,069) Unrealized Holding Loss on Marketable Securities, Net of Deferred Taxes - - - - (163) (163) ------- ------- ---------- --------- ----------- ------- Balance at December 31,1994 $ 5,405 $54,450 $ 87,757 ($1,133) ($163) $146,316 ======= ======= ========== ========= =========== ======== Net Income for Year Ended December 31, 1995 - - 20,980 - - 20,980 Cash Dividends - - ( 1,228) - - (1,228) 25% Stock Dividend 1,351 - ( 1,351) - - - Unrealized Holding Gain on Marketable Securities, Net of Deferred Taxes - - - - 193 193 ----- ------- --------- --------- ----------- ------- Balance at December 31,1995 $6,756 $54,450 $106,158 ($1,133) $ 30 $166,261 ====== ======= ========== ========= =========== ========
[FN] The accompanying notes are an integral part of these statements. INTERNATIONAL SHIPHOLDING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31, 1995 1994 1993 (All Amounts in Thousands) ------- ------- -------- Cash Flows from Operating Activities: Net Income $20,980 $13,051 $ 5,929 Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation 26,653 24,516 24,895 Amortization of Deferred Charges and Other Assets 17,310 17,105 19,785 Provision for Deferred Income Taxes 94 1,568 5,851 Equity in Unconsolidated Subsidiaries (331) (776) 2,289 Loss (Gain) on Sale of Vessel and Other Property (7) 83 (374) Gain on Sale of Investment in Havtor AS (17,409) - - Extraordinary Loss - - 1,716 Changes in: Accounts Receivable 543 (466) (534) Net Investment in Direct Financing Leases 2,188 2,258 2,314 Other Assets 2,599 1,138 3,267 Inventories and Other Current Assets (1,334) 1,718 (1,551) Accounts Payable and Accrued Liabilities (694) (634) 11,989 Federal Income Taxes Payable 6,084 - - Unearned Income 168 45 (6,431) Reserve for Claims and Other Deferred Credits (2,866) (772) (5,926) -------- ---------- --------- Net Cash Provided by Operating Activities 53,978 58,834 63,219 -------- ---------- --------- Cash Flows from Investing Activities: Purchase of Vessels and Other Property (127,942) (56,977) (12,044) Additions to Deferred Charges (11,682) ( 6,188) (19,612) Proceeds from Sale of Vessels and Other Property 7 710 3,201 Proceeds from (Purchase of) Short-Term Investments 2,763 12,182 (19,278) Investment in and Advances to Unconsolidated Entities - 1,447 377 Purchase of LITCO - - (1,606) Proceeds from Sale of Havtor AS 48,621 - - Other Investing Activities 9,067 (7,983) - --------- --------- --------- Net Cash Used by Investing Activities (79,166) (56,809) (48,962) --------- --------- --------- Cash Flows from Financing Activities: Proceeds from Issuance of Debt and Capital Lease Obligations 105,651 90,538 146,748 Reduction of Debt and Capital Lease Obligations (53,930) (83,121) (154,224) Additions to Deferred Financing Charges (635) (388) (4,639) Preferred and Common Stock Dividends Paid (1,228) (1,069) (1,895) Proceeds from Issuance of Common Stock - - 4,250 Redemption of Preferred Stock - - (13,750) -------- --------- ---------- Net Cash Provided (Used) by Financing Activities 49,858 5,960 (23,510) -------- --------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 24,670 7,985 (9,253) Cash and Cash Equivalents at Beginning of Period 29,611 21,626 30,879 -------- --------- ---------- Cash and Cash Equivalents at End of Period $ 54,281 $ 29,611 $ 21,626 ======== ========= ==========
[FN] The accompanying notes are an integral part of these statements. NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying financial statements include the accounts of International Shipholding Corporation and its consolidated subsidiaries (the Company). All significant intercompany accounts and transactions have been eliminated. The Company uses the cost method to account for investments in entities in which it holds less than a 20% voting interest and in which the Company cannot exercise significant influence over operating and financial activities. The Company uses the equity method to account for investments in entities in which it holds a 20% to 50% voting interest. Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation. NATURE OF OPERATIONS The Company, through its subsidiaries, operates a diversified fleet of U.S. and international flag vessels that provide international and domestic maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts. The Company's fleet consists of 29 ocean-going vessels, 15 towboats, 129 river barges, 26 special purpose barges, approximately 1,650 LASH barges and related shoreside handling facilities. The Company's strategy is to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts, and (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements. PERVASIVENESS OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. VOYAGE ACCOUNTING Revenues and expenses relating to voyages are recorded on the percentage-of-completion method, except that provisions for loss voyages are recorded when contracts for the voyages are fixed or when losses become apparent for voyages in progress. Use of the percentage-of-completion method requires management to make estimates and assumptions that affect the reported amount of revenues and expenses during the reported period. Actual results could differ from those estimates. VESSELS AND OTHER PROPERTY Costs of all major property additions and betterments are capitalized. Ordinary maintenance and repair costs are expensed as incurred. Interest and finance costs relating to vessels, barges and other equipment under construction are capitalized to properly reflect the cost of assets acquired. Capitalized interest totaled $2,721,000, $1,763,000, and $918,000 for the years ended December 31, 1995, 1994, and 1993, respectively. Assets under capital lease are recorded on the balance sheet under the caption Vessels, Property and Other Equipment (See Note G). For financial reporting purposes, vessels are generally depreciated over their estimated useful life of 25 years from construction using the straight-line method. As a result of major capital improvements during 1990, 1991, and early 1992, the useful lives of the Company's LASH vessels have been extended from 25 to 30 years. In late 1994, the Company purchased two previously leased LASH vessels at fair market value. The estimated useful lives from construction of each of these vessels is 30 years. The two pure car carriers along with the two SPLASH vessels and associated Fuel and Hopper barges are being depreciated over estimated useful lives of 20 years. The coal terminal is being depreciated over 22 years and the LITCO terminal is being depreciated over 11 years. Other marine equipment is being depreciated predominantly over a four year period. The Company groups all LASH barges into pools with estimated useful lives corresponding to the remaining useful lives of the vessels with which they are utilized. Major barge refurbishments are capitalized and included in the aforementioned group of barge pools. The estimated useful lives of the pools have been extended through 2003 in accordance with the extension of the vessel lives. The Company refurbished a major portion of these barges during 1990 through 1992 to allow utilization through 2003. From time to time, the Company disposes of barges in the ordinary course of business. In these cases, proceeds from the disposition are credited to the remaining net book value of the respective pool and future depreciation charges are adjusted accordingly. INCOME TAXES Deferred income taxes are provided on items of income and expense which affect taxable income in one period and financial income in another. Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation. However, pursuant to existing U.S. Tax Laws, earnings from certain foreign operations are subject to U.S. income taxes (See Note D). FOREIGN CURRENCY TRANSLATION All exchange adjustments are charged or credited to income in the year incurred. Exchange losses of $159,000, $119,000, and $359,000 were recognized for the years ended December 31, 1995, 1994, and 1993, respectively. DIVIDEND POLICY On November 17, 1995, the Company distributed a twenty- five percent stock split effected in the form of a stock dividend to shareholders of record at the close of business on November 3, 1995. Fractional shares were purchased by the Company at the reported last sale price per share on the record date, adjusted to reflect the dividend. All per share and weighted average share amounts have been restated to reflect the 25% dividend. The Board of Directors declared and paid dividends of $.05 per share ($.04 per share after giving effect to the 25% stock dividend) for the first, second, and third quarters in 1995 and for each quarter in 1994 and 1993. A dividend of $.0625 was declared and paid for the fourth quarter in 1995. Subsequent to year end a dividend of $.0625 per common share was declared to be paid in the first quarter of 1996. The payment of dividends is subject to restrictions set forth in certain of the Company's debt instruments. The Company paid dividends on its common stock of $1,228,000, $1,069,000, and $1,027,000 in 1995, 1994, and 1993, respectively. Such amounts did not exceed restrictions set forth in these agreements or its other debt instruments. NET INCOME PER COMMON SHARE Primary earnings per common share are based on the weighted average number of shares outstanding during the period after consideration of the dilutive effect of stock warrants based on the average market price of common stock for the period. The primary weighted average number of common shares outstanding was 6,682,887, 6,682,887, and 6,525,259 for the years ended December 31, 1995, 1994, and 1993, respectively. Primary and fully diluted weighted average common shares outstanding were the same for each of these years. OPERATING DIFFERENTIAL SUBSIDY AGREEMENTS The Company operates a fleet of four U.S. Flag vessels under an operating differential subsidy ("ODS") agreement with the U.S. Maritime Administration ("MarAd"), an agency of the Department of Transportation ("DOT") under Title VI of the Merchant Marine Act of 1936, as amended. Under this agreement, MarAd agrees to pay the excess of certain vessel expenses over comparable vessel expenses of principal foreign competitors in each respective trade route through the scheduled termination date of December 31, 1996. These vessels are employed in a liner service between ports on the U.S. Gulf/U.S. Atlantic Coast and South Asia (Trade Routes 18 and 17). The Company's subsidy agreement expires on December 31, 1996, and all other subsidy agreements with U.S. flag operators expire on December 31, 1997. It is not clear at this point whether the subsidies will be renewed. If the subsidy program is not renewed the Company will be required to consider various options for its U.S. Flag vessels receiving ODS, including vessel modifications that would increase fuel efficiency, reduction of crew size and wages to more closely approximate those of non-subsidized vessels, reduction of other operating expenses, and/or transfer to foreign flag operations with foreign crews. Traffic accounts receivable include $4,949,000 and $3,080,000 due from MarAd under these ODS agreements at December 31, 1995 and 1994, respectively. Subsidy billings are based on rates furnished by MarAd. SELF-RETENTION INSURANCE Effective December 1, 1993, the Company became self- insured for most Personal Injury and Cargo claims under $1,000,000 and for Hull claims under $2,500,000. The Company maintains insurance for claims over the above amounts and maintains Stop Loss insurance to cover aggregate claims below $1,000,000 and $ 2,500,000.00. Under the Stop Loss insurance, the Company is responsible for all claims under $1,000,000 and $2,500,000 until the total amount of claims between primary deductibles and the above amounts reach $7,000,000 in the aggregate per year. Primary deductibles are $25,000 for Hull, Personal Injury and Cargo, and $1,000 for LASH barges. After the Company has retained $7,000,000 in the aggregate, all additional claims are recoverable from underwriters. From February 20, 1992 until December 1, 1993, the Company was self-insured for most personal injury and cargo claims under $250,000. Provisions for losses are recorded based on the Company's estimate of the eventual settlement costs. The current portions of these liabilities were $4,698,000 and $1,978,000 at December 31, 1995 and 1994, and the noncurrent portions of these liabilities were $5,459,000 and $5,789,000 at December 31, 1995 and 1994, respectively. NOTE B - LONG-TERM DEBT
(All Amounts in Thousands) December 31, Balance at December 31, Description 1995 1994 Due 1995 1994 - - ----------- ----------- ----------- ---------- ------- ------- Unsecured Senior Notes - Fixed Rate 9.00% 9.00% 2003 $93,891 $94,800 Fixed Rate Notes Payable 8.25-10.50% 8.25-10.50% 1999-2002 52,926 67,707 Variable Rate Notes Payable 6.625-7.808% 6.6875-7.75% 1997-2005 113,479 39,824 U.S. Government Guaranteed Ship Financing Notes and Bonds - Fixed Rate 6.58-8.30% 6.58-8.30% 2000-2009 50,361 55,276 ------- ------- $310,657 $257,607 Less Current Maturities (40,785) (26,755) ------- ------- $269,872 $230,852 ======== ========
The aggregate principal payments required as of December 31, 1995 for each of the next five years are $40,785,000 in 1996, $35,035,000 in 1997, $32,804,000 in 1998, $28,876,000 in 1999, and $19,445,000 in 2000. Certain of the vessels and barges owned by the Company are mortgaged under certain debt agreements. Additional collateral includes a security interest in certain operating contracts and receivables. Most of these agreements, among other things, impose minimum working capital and net worth requirements, as defined, impose restrictions on the payment of dividends (see Note A), and prohibit the Company from incurring, without prior written consent, additional debt or lease obligations, except as defined. The Company has consistently met the minimum working capital and net worth requirements during the period covered by the agreements and is in compliance with these requirements as of December 31, 1995. Under the most restrictive of its credit agreements, the Company cannot declare or pay dividends unless (1) the total of (a) all dividends paid, distributions on or other payments made with respect to the Company's capital stock during the period beginning October 1, 1989 and ending on the date of dividend declaration or other payment and (b) all investments other than Qualified Investments (as defined) of the Company and certain designated subsidiaries will not exceed the sum of $3,000,000 plus 50% (or, in case of a loss, minus 100%) of the Company's consolidated net income during the period described above plus the net cash proceeds received from the issuance of common stock by the Company during the above period, and (2) no default or event of default has occurred. Certain loan agreements also restrict the ability of the Company's subsidiaries to make dividend payments, loans or advances, the most restrictive of which contain covenants that restrict payments of dividends, loans or advances to the Company from Central Gulf Lines, Inc., Waterman Steamship Corporation and Sulphur Carriers, Inc. unless certain financial ratios are maintained. As long as those ratios are maintained, there is no restriction on loans or advances to the Company from those subsidiaries; however, dividends generally are restricted to 40% of the most recent four quarters' net income of Central Gulf Lines, Inc., and Waterman Steamship Corporation. Dividends of Sulphur Carriers, Inc. are restricted to 40% of undistributed earnings. The amounts of restricted assets as of December 31, were as follows:
(In Thousands) 1995 1994 -------- --------- New Combo, Inc. $ - $ 415 Cypress Auto Carriers,Inc. 9,264 8,625 Sulphur Carriers, Inc. 21,588 21,588 Waterman Steamship Corporation 65,136 69,674 Central Gulf Lines, Inc. 79,581 69,141 -------- -------- Total Restricted Net Assets $175,569 $169,443 ======== ========
The Company has available four lines of credit totaling $35,000,000. These lines were undrawn as of December 31, 1995, and two of these lines were fully drawn as of December 31, 1994 for an amount totaling $10,000,000. These lines of credit are used to meet short-term requirements when fluctuations occur in working capital. The Company is required to maintain a $375,000 compensating balance for one of the lines of credit. This balance is included in Cash and Cash Equivalents. Under certain of the above described loan agreements, deposits are made into bank retention accounts to meet the requirements of the applicable agreements. At December 31, 1995, these escrowed amounts totaled $4,867,000, which was included in Other Assets. At December 31, 1994, these escrowed amounts totaled $21,021,000 of which $1,000,000 was included in Cash and Other Cash Equivalents, $7,096,000 in Marketable Securities, and $12,925,000 in Other Assets. NOTE C - PENSION PLAN AND POSTRETIREMENT BENEFITS The Company's retirement plan covers all full-time employees of domestic subsidiaries who are not otherwise covered under union-sponsored plans. The benefits are based on years of service and the employee's highest sixty consecutive months of compensation. The Company's funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation. Plan assets consist primarily of investments in certain bank common trust funds of trust quality assets and money market holdings. The following table sets forth the plan's funded status and pension costs recognized by the Company at December 31, 1995 and 1994. Actuarial Present Value of Benefit Obligations:
(All Amounts in Thousands) December 31, December 31, 1995 1994 ---------- ----------- Vested Benefit Obligation $ (9,680) $ (8,658) ========== =========== Accumulated Benefit Obligation $ (9,795) $ (8,784) ========== =========== Projected Benefit Obligation $ (10,886) $ (9,805) Plan Assets at Fair Value 12,306 10,172 ---------- ---------- Plan Assets in Excess of Projected Benefit Obligation 1,420 367 Unrecognized Net Gain (1,310) (373) Prior Service Cost Not Yet Recognized in Net Periodic Pension Cost 157 184 Unrecognized Net Obligation Being Recognized Over 15 Years 371 445 ---------- ----------- Accrued Pension Asset $ 638 $ 623 ========== ===========
Net Periodic Pension Cost:
1995 1994 1993 ______ ______ ______ Service Cost $ 451 $ 469 $ 396 Interest Cost on Projected Benefit Obligation 752 701 630 Actual Return on Plan Assets (2,130) 150 (1,033) Net Amortization and Deferral (1,355) (922) 343 ------- ------ ------ Net Periodic Pension Cost $ 428 $ 398 $ 336 ======= ====== ======
Actuarial assumptions used to develop the components of pension expense for the years ended December 31, 1995, 1994 and 1993 were as follows:
1995 1994 1993 ----- ---- ---- Discount Rate 7.25% 8.0% 7.5% Rate of Increase in Future Compensation Levels 5.0% 6.0% 6.0% Expected Long-term Rate of Return on Assets 8.5% 8.5% 8.5%
Crew members on the Company's U.S. flag vessels belong to union-sponsored pension plans. The Company contributed approximately $2,004,000, $2,106,000 and $2,495,000 to these plans for the years ended December 31, 1995, 1994 and 1993, respectively. These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members. Information from the plans' administrators is not available to permit the Company to determine whether there may be unfunded vested benefits. The Company's postretirement benefit plans currently provide medical, dental and life insurance benefits to eligible retired employees and their eligible dependents. The following table sets forth the plans' combined funded status reconciled with the amount included in the Company's balance sheet classification Reserves and Deferred Credits at December 31, 1995 and 1994 (All Amounts in Thousands): Accumulated Postretirement Benefit Obligation:
1995 1994 ________ ________ Retirees $ (4,638) $ (3,594) Fully eligible active plan participants (1,655) (1,345) Other active plan participants (1,265) (1,405) --------- --------- $ (7,558) $ (6,344) Plan Assets at Fair Value - - --------- --------- Accumulated Postretirement Benefit Obligation in Excess of Plan Assets (7,558) (6,344) Unrecognized Experience Loss 1,685 799 --------- --------- Accrued Postretirement Benefit Cost in Balance Sheet $ (5,873) $ (5,545) ========= =========
Net postretirement benefit cost includes the following components:
1995 1994 _______ _______ Service Cost $ 100 $ 107 Interest Cost on Accumulated Postretirement Benefit Obligation 520 464 Net Amortization 37 71 ------- ------- Net Postretirement Benefit Cost $ 667 $ 642 ======= =======
The accumulated postretirement benefit obligation was computed using an assumed discount rate of 7.25%. The health and dental care cost trend rate was assumed to be 11% for 1996, then the trend rate was assumed to decline until the year 2003 at which time the rate remains 5.0%. If the health and dental care cost trend rate was increased one percent for all future years, the accumulated postretirement benefit obligation as of December 31, 1995 would have increased approximately $902,000 or 12%. The effect of this change in the net postretirement benefit cost for 1995 would have been an increase of approximately $73,000 or 11%. The Company continues to evaluate ways in which it can better manage these benefits and control the costs. Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of the reported obligation and annual expense. In November 1992, the Financial Accounting Standards Board issued Statement 112, "Employers' Accounting for Postemployment Benefits", which requires adoption for fiscal years beginning after December 15, 1993. The new standard requires an obligation to be recorded if the following four conditions are met: (1) the obligation is attributable to employees' services already rendered, (2) employees' rights to those benefits accumulate or vest, (3) payment of the benefit is probable and (4) the amount of the benefit can be reasonably estimated. This is a change from the Company's policy of recognizing these costs on a cash basis. Adoption did not have a material impact on the Company's financial position or results of operations. NOTE D - INCOME TAXES The Federal income tax returns of the Company are filed on a consolidated basis and include the results of operations of its wholly-owned U.S. subsidiaries. Pursuant to the Tax Reform Act of 1986, the earnings of foreign subsidiaries ($12,001,257 in 1995, $4,147,420 in 1994 and $11,904 in 1993) are also included. Prior to 1987, deferred income taxes were not provided on undistributed foreign earnings of $6,689,245, all of which are expected to remain invested indefinitely. In accordance with the Tax Reform Act of 1986, commencing in 1987 earnings generated from profitable controlled foreign subsidiaries are subject to Federal income taxes. In February 1992, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which superseded accounting standards for income taxes which the Company adopted in 1988. The Company adopted Statement No. 109 effective January 1, 1993 and adoption had no impact on the Company's financial position or results of operations. Components of the net deferred tax liability/(asset) are as follows:
December 31, December 31, (All Amounts in Thousands) 1995 1994 ------------ ------------ Gross Liabilities: Fixed Assets $ 31,939 $ 35,036 Deferred Charges 6,174 5,234 Unterminated voyage revenue/ expense 2,045 2,047 Intangible Assets 7,498 8,465 Other Liabilities 14,492 11,747 Gross Assets: Insurance and claims reserve (4,239) (5,394) Net operating loss carryforward/ unutilized deficit (1,838) (6,752) Valuation allowance 879 879 Other assets (16,999) (11,534) -------- -------- Total deferred tax liability, net $39,951 $39,728 ======== ========
Deferred tax liability increased during 1995 due to the recognition of the deferred federal income tax expense of $94,000, a deferred tax liability of $104,000 due to an unrealized holding gain on marketable securitites, and a prior year increase to deferred tax liability of $25,000. The following is a reconciliation of the U.S. statutory tax rate to the Company's effective tax rate:
Year Ended December 31, ------------------------------ 1995 1994 1993 ----- ----- ----- Statutory Rate 35.0% 35.0% 35.0% State Income Taxes 1.2% .9% 3.3% (Income) Loss of Unconsolidated Entities -- (1.6%) 5.1% Tax Rate Adjustment -- -- 5.2% Other ( .3%) ( .2%) ( .6%) ------ ------ ------ 35.9% 34.1% 48.0% ====== ====== ======
The Company has available at December 31, 1995, unused operating loss carryforwards of $.4 million and unused foreign deficits of $4.9 million. The operating loss carryforwards will expire in 2001. NOTE E - TRANSACTIONS WITH RELATED PARTIES The Company was a party to agreements with certain corporations controlled by members of the Company's management to charter 39 river barges owned by such corporations for use in the Company's domestic and international operations. The Company paid $440,000 for the period ended April 30, 1993 in barge rentals under the agreements. The Company purchased these barges for $1,600,000 in the aggregate in May of 1993. Accordingly, there were no amounts due to related parties associated with these transactions at December 31, 1995 and 1994. During 1990, the Company sold one if its subsidiaries to a former employee at a sales price of $500,000. At the end of 1993, the Company sold another subsidiary to the same party for a sales price of $692,000. The receivables due from this related party totaled $591,000 and $665,000 at December 31, 1995 and 1994, respectively. The long-term portion of this receivable was included in Due From Related Parties and the current portion was included in Accounts Receivable - Claims and Other. Collections on the total receivable were $55,000 and $300,000 for the years ended December 31, 1995 and 1994, respectively. This receivable is for a period of ten years and bears interest at the rate of 6% for the first five years and a variable rate of LIBOR plus 2% thereafter. Since the Company's inception, the legal firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre has been utilized for various legal services. During 1992, a son of the President of the Company became a partner of the firm. The Company made payments to the firm totaling approximately $1,301,000, $1,525,000 and $1,781,000 for the years ending December 31, 1995, 1994 and 1993, respectively. Amounts due to the legal firm were $94,000 and $78,000 at December 31, 1995 and 1994, respectively, and were included in Accounts Payable and Accrued Liabilities. The total amount in Due From Related Parties at December 31, 1994 also included a receivable in the amount of $5,497,000 from a Norwegian interest, A/S Havfond, as further discussed in Note K. NOTE F - COMMITMENTS AND CONTINGENCIES During 1994, the Company entered into a long-term contract to provide ocean transportation services to a major mining company. The Company purchased and converted two semi-submersible barge carrying vessels and built 26 cargo barges to be used with the aforementioned vessels. The total cost of these capital expenditures is expected to approximate $80,131,000 of which $55,674,000 was paid as of December 31, 1995. The remaining cost of $24,457,000 is expected to be paid within one year and is included in Accounts Payable and Accrued Liabilities at December 31, 1995. A major portion of these costs will be funded through draws of approximately $16,849,000 remaining on a long-term loan with a commercial bank. As of December 31, 1995, 22 vessels that the Company owns or operates were under various contracts extending beyond 1995 and expiring at various dates through 2024. In addition the Company also operates 111 jumbo river barges, 15 towboats and certain terminal transfer equipment under a contract which expires in 2004. Certain of these agreements also contain options to extend the contracts beyond their minimum terms. The Company also maintains a $600,000 line of credit to cover standby letters of credit for membership in various shipping conferences. In late 1995, the Company committed to the refinancing in early 1996 of a $50,000,000 medium-term, commercial bank loan through the private placement market at more favorable terms. NOTE G - LEASES In 1988, the Company entered into direct financing leases of two foreign flag pure car carriers expiring in the year 2000. The schedule of future minimum rentals to be received under these direct financing leases in effect at December 31, 1995 is as follows:
Receivables Under (All Amounts in Thousands) Financing Year Ended December 31, Leases ---------- 1996 $ 5,328 1997 4,972 1998 4,621 1999 4,265 2000 1,313 ---------- Total Minimum Lease Payments Receivable 20,499 Estimated Residual Values of Leased Properties 18,000 Less Unearned Income (11,913) ------------ Total Net Investment in Direct Financing Leases 26,586 Current Portion (2,104) ------------ Long-Term Net Investment in Direct Financing Leases at December 31, 1995 $ 24,482 ============
The Company was also a party to a capital lease agreement for two LASH vessels. The term of the lease was twenty years and expired in the Fourth Quarter of 1994. The Company purchased these previously leased capital assets at their fair market value. The Company entered into sale-leaseback agreements in 1991 and 1992 for a group of the Company's LASH barges. These leases meet the required criteria for a capital lease and are accounted for as such. The terms of the leases are 12 years. The aforementioned capital leases are included in Vessels, Property and Other Equipment as follows:
(All Amounts in Thousands) 1995 1994 ------- ------- Vessels and LASH barges $24,950 $24,950 Less Accumulated Depreciation 8,224 6,134 ------- ------- Total $16,726 $18,816 ======= =======
The following is a schedule, by year, of future minimum lease payments under capital leases, together with the present value of the minimum payments as of December 31, 1995:
Payments Under (All Amounts in Thousands) Capital Leases Year ended December 31, -------------- 1996 $ 3,705 1997 4,061 1998 4,450 1999 4,521 2000 4,528 Thereafter 10,638 ------- 31,903 Less - Amount Representing Interest (10,811) -------- Present Value of Future Minimum Payments (Based on a Weighted Average of 10.39%) $ 21,092 ==========
The Company conducts certain of its operations from leased office facilities and uses certain data processing, transportation and other equipment under operating leases expiring at various dates to 2003. The following is a schedule, by year, of future minimum payments required under operating leases that have initial or remaining non- cancelable terms in excess of one year as of December 31, 1995:
Payments Under (All Amounts in Thousands) Operating Year Ended December 31, Leases ---------- 1996 $ 2,375 1997 2,231 1998 1,466 1999 489 2000 489 Thereafter 1,338 ---------- Total Future Minimum Payments $ 8,388 ==========
NOTE H - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS The Company defers certain costs related to the acquisition of vessel operating contracts, the cost of placing vessels in service, and the drydocking of vessels. The costs of acquiring vessel operating contracts and vessel prepositioning are amortized over the applicable contract periods. Deferred drydocking costs are amortized over the period between drydockings (generally two to five years). Financing charges are amortized over the life of the applicable debt involved. Deferred costs are comprised of the following:
Year Ended December 31, -------------------- (All Amounts in Thousands) 1995 1994 -------- -------- Drydocking $ 13,567 $ 18,152 Prepositioning 4,826 4,487 Financing Charges and Other 8,559 7,974 -------- -------- $ 26,952 $ 30,613 ======== ========
The Company amortizes acquired contract costs over the contracts' useful lives using the straight-line method of amortization. The acquired contract cost represents the portion of the purchase price paid for Waterman Steamship Corporation applicable primarily to that company's maritime prepositioning ship contracts and operating differential subsidy agreements. These costs are being amortized over useful lives ranging from seven to twenty-one years from the acquisition date. NOTE I - SIGNIFICANT OPERATIONS The Company has several medium to long-term contracts related to the operations of various vessels (See Note F), from which revenues represent a significant amount of the Company's total revenue. Revenues from the contracts with the United States Military Sealift Command were $75,086,000, $75,137,000, and $82,239,000 for the years ended December 31, 1995, 1994 and 1993, respectively. Additionally, the Company operates four U.S. Flag LASH vessels on subsidized liner service between the U.S. Gulf and South Asia (Trade Routes 18 and 17). Revenues, including ODS, from this operation were $129,067,000, $137,021,000, and $143,811,000 for the years ended December 31, 1995, 1994 and 1993, respectively. The Company currently operates two international flag LASH vessels on a scheduled liner service between U.S. Gulf and East Coast ports and ports in Northern Europe. Revenues for these operations were $67,500,000, $68,287,000 and $58,455,000 for the years ended December 31, 1995, 1994, and 1993, respectively. A significant portion of the Company's traffic receivables are due from contracts with the U.S. Military Sealift Command and transportation of government sponsored cargo. There are no other concentrations of receivables from customers or geographic regions that exceed 10% of stockholders' investment at December 31, 1995 or 1994. The Company has operations in several principal markets including international service between the U.S. Gulf and East ports and ports in the Middle East, Far East, and northern Europe and domestic transportation and services along the Mississippi River and U.S. Gulf Coast. NOTE J - REDEEMABLE PREFERRED STOCK In 1987 and 1989, the Company issued 85,000 and 25,000 shares, respectively, of cumulative redeemable preferred stock, together with warrants to purchase shares of common stock. The coupon rate and warrants were adjustable under certain conditions. As of 1993, the coupon rate on the preferred stock ranged from 8.822% to 10.898%, and the number of shares of common stock purchasable under the warrants totaled 427,500. During 1993, the Company redeemed the remaining preferred stock outstanding of $13.750 million at a total redemption cost including accrued interest and prepayment penalties of $14.178 million. The warrant holders exercised their rights under the warrants to purchase the 427,500 shares of common stock at an exercise price of $10.12 per share. NOTE K - UNCONSOLIDATED ENTITIES As of December 31, 1994, the Company held an approximate 9% interest in Havtor AS, a publicly listed company on the Oslo Stock Exchange. In addition, shares which represented a 3.6% interest in Havtor AS were held by the Company as collateral for a promissory note which was scheduled to mature in mid-1996. The Company also held a 14.2% interest in A/S Havtor Management, a privately held Norwegian ship management company affiliated with Havtor AS. As of December 31, 1994, the Company held a 50% interest in a foreign entity, Bulkowners 1984, which was formed to own and operate two combination dry cargo/petroleum products, PROBO vessels. The Company also held a 10% interest in a limited partnership with certain Norwegian interests to construct and own a Liquified Petroleum Gas carrier which delivered in 1993. During the first half of 1995, A/S Havtor Management and the gas carrier activities of Kvaerner, an unrelated Norwegian company merged into Havtor AS. In addition, Havtor AS agreed to acquire other vessels and vessel interests, including the 50% interest held by the Company in two PROBO vessels and the 10% interest held in a Liquified Petroleum Gas carrier. Subsequent to the merger, the Company's interest in Havtor AS approximated 6.4%. During the second quarter of 1995, the Company purchased the Norwegian interest, A/S Havfond, which held the promissory note scheduled to mature in mid-1996 and collateralized by shares of Havtor AS. The acquisition was accounted for as a purchase and results for A/S Havfond have been included in the accompanying consolidated financial statements since the date of acquisition. After the acquisition, the Company's interest in Havtor AS approximated 7.7%. During November 1995 the Company sold this 7.7% interest in Havtor AS for approximately $48 million. The sale resulted in a before tax gain of approximately $17 million. At December 31, 1993, the Company held a 14.8% interest in A/S Havtor and a 14.2% interest in A/S Havtor Management. During 1994, A/S Havtor, certain associated companies, and a portion of A/S Havtor Management were merged into the publicly listed company, Havtor AS. No earnings were distributed from Havtor AS since the merger. No dividends were received from A/S Havtor Management during 1993, 1994 or 1995. Since the Company had no substantive control or input regarding the operations of Havtor AS or A/S Havtor Management, and its direct and indirect ownership in both was below 20%, the investments were accounted for under the cost method of accounting which permits recognition of income only upon distribution of dividends or sale of interests. At December 31, 1994, the Company held a 50% interest in Bulkowner's 1984 which was accounted for under the equity method. Following is a summary of the unaudited financial data of Bulkowner's 1984:
(All Amounts in Thousands) 1994 ------- Current Assets $27,385 Non-current Assets 42,577 ------- Total Assets $69,962 ======= Current Liabilities $325 Non-current Liabilities 63,978 Equity 5,659 ------- Total Liabilities and Shareholder's Equity $69,962 =======
Twelve Months Ended October 31, ------------------ 1994 1993 ------ ------ Gross Revenues $9,052 $8,809 ====== ====== Gross Profit $4,132 $3,919 ====== ====== Net Income $1,840 $1,126 ====== ======
The Company has a 50% interest in a foreign entity, Marco Shipping Company, (PTE.) Ltd. ("Marco"), which acts in an agent capacity on behalf of the Company. The Company's investment in Marco at December 31, 1995 and 1994 had been fully written off through the recognition of losses generated from the entity. During 1993, the Company purchased the remaining 50% interest in a LASH barge intermodal company ("LITCO") for $1,900,000. The acquisition was accounted for as a purchase and the results of LITCO have been included in the accompanying consolidated financial statements since the date of acquisition. Income of foreign unconsolidated entities is recorded net of applicable taxes of approximately $201,000 and $32,000 in 1995 and 1994, respectively. In 1993 losses from unconsolidated entities were recorded net of applicable tax benefits of approximately $1,405,000. NOTE L - CASH FLOW INFORMATION
Year Ended December 31, (All Amounts in Thousands) 1995 1994 1993 ------- ------- -------- Non-Cash Investing and Financing Activities: Accounts Payable to be Refinanced $19,030 $ - $ 340 Cash Payments: Interest Paid Net of Capitalized Interest 26,633 23,537 20,510 Taxes Paid 5,478 2,982 3,087
During 1993, the Company reacquired an 11% interest in a foreign entity, Bulkowner's 1984. Notes receivable from the sellers in the amount of $2,896,000 were canceled as a part of the purchase price. The Company also sold an interest in A/S Havtor in 1993 for $7,557,000 of which $2,777,000 was received in cash and $4,780,000 in the form of a promissory note which is included in Other Assets: Due from Related Parties at December 31, 1994. During 1995, the Company purchased A/S Havfond, the Norwegian interest which held this promissory note. For purposes of the accompanying statement of cash flows, the Company considers highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. NOTE M - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: CASH AND CASH EQUIVALENTS AND MARKETABLE SECURITIES The carrying amount approximates fair value for each of these instruments. INTEREST RATE CONVERSION AGREEMENTS The Company has only limited involvement with derivative financial instruments. They are used to manage well-defined interest rate risks and are not used for trading purposes. During 1993, the Company entered into interest rate conversion agreements with two commercial banks to reduce the possible impact of higher rates in the long-term market by utilizing potentially lower rates in the short-term market. The floating rate payor is the Company, and the commercial banks are the fixed rate payors. The floating rate and fixed rates at December 31, 1995 were 5.875% and 4.72%, respectively. The floating rate and fixed rates at December 31, 1994 were 5.125% and 4.72%, respectively. The contract amounts totaled $100,000,000 at December 31, 1995 and 1994 and will expire August 1996. The Company made payments under these agreements totaling $1,265,000 during 1995 and received payments totaling $1,146,000 during 1994. A payment of $620,000 was made under the agreements in early 1996. Net receipts or payments under the agreements are recognized as an adjustment to interest expense. The fair value of interest rate swaps is the estimated amount that the bank would receive or pay to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates. FOREIGN CURRENCY CONTRACTS The Company enters into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies. The term of the currency derivatives is rarely more than one year. The purpose of the Company's foreign currency hedging activities is to protect the Company from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates. As of December 31, 1995, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $23,316,000 U.S. Dollar equivalents to hedge against future payments due to Singapore shipyards for conversion work on two float-on/float-off vessels. As of December 31, 1994, the Company had entered into various forward purchase contracts for Singapore Dollars totaling $24,048,000 U.S. Dollar equivalents to hedge against future payments due to Singapore shipyards for conversion work on two float- on/float-off vessels and drydocking cost of a bulk carrier. Gains or losses on forward exchange contracts which hedge exposures on firm foreign currency commitments are deferred and recognized as adjustments to the bases of those assets. As of December 31, 1995 and 1994, the Company was also a party to forward sales contracts in various currencies totaling $515,000 and $1,175,000 U.S. Dollar equivalents which approximated fair market value. Gains and losses on these contracts are recognized in net income of the period in which the exchange rate changes. LONG-TERM DEBT The fair value of the Company's debt is estimated based on quoted market prices for the publicly listed Senior Notes and the current rates offered to the Company on other outstanding obligations. INVESTMENTS IN UNCONSOLIDATED ENTITIES RECORDED UNDER THE COST METHOD OF ACCOUNTING The fair market value of some investments are estimated based on quoted market prices and for others are based on ship values collected from an independent broker with adjustments for value of freight contracts, management activity and ship pool participation as applicable. AMOUNTS DUE FROM RELATED PARTIES The carrying amount of these notes receivable approximated fair market value as of December 31, 1995 and 1994. Fair market value takes into consideration the current rates at which similar notes would be made and the market value of collateral underlying the notes. RESTRICTED INVESTMENTS The carrying amount of these investments, which were included in Other Assets, approximated fair market value as of December 31, 1995 and 1994 based upon current rates offered on similar instruments. The estimated fair values of the Company's financial instruments and derivatives are as follows (asset/(liability)):
1995 1994 ------------------- ------------------ Carrying Fair Carrying Fair (All Amounts in Amount Value Amount Value Thousands) --------- -------- --------- -------- Interest Rate Conversion Agreements - ($ 552) - $( 4,908) Forward Purchase Contracts - 54 - 318 Long-Term Debt ($310,657) (315,929) ($257,607)(251,429) Investments in Unconsolidated Entities Recorded at Cost - - 13,152 28,412
Disclosure of the fair value of all balance sheet classifications is not required, including but not limited to certain vessels, property, plant and equipment, direct financing leases or intangible assets which may have a fair value in excess of historical cost. Therefore, this disclosure does not purport to represent the fair value of the Company. NOTE N - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES Detailed below are the components of the Consolidated Balance Sheet classification Accounts Payable and Accrued Liabilities for the periods indicated.
(All Amounts in Thousands) 1995 1994 ------- ------- Trade Accounts Payable $11,278 $ 8,966 Accrued Salaries and Benefits 3,509 2,665 Accrued Voyage Expenses 27,571 31,573 Accrued Interest 10,666 7,257 Accrued Vessel Costs 24,457 2,600 Taxes Payable 6,520 260 ------- ------- $84,001 $53,321 ======= =======
NOTE O-QUARTERLY FINANCIAL INFORMATION - (Unaudited)
Quarter Ended ------------------------------------- March 31 June 30 Sept. 30 Dec. 31 -------- --------- --------- -------- (All amounts in thousands except per share data) 1995 Revenue $ 83,302 $ 84,844 $ 84,108 $ 89,535 Expense 68,332 69,780 68,533 70,608 Gross Voyage Profit 14,970 15,064 15,575 18,927 Net Income 2,086 2,020 2,029 14,845 Earnings per Common and Common Equivalent Share: Primary: Net Income 0.31* 0.30* 0.30* 2.23 1994 Revenue $ 83,361 $ 89,148 $ 81,568 $ 88,256 Expense 68,295 74,658 64,792 69,273 Gross Voyage Profit 15,066 14,490 16,776 18,983 Net Income 2,447 3,391 3,498 3,715 Earnings per Common and Common Equivalent Share: Primary: Net Income 0.37* 0.51* 0.52* 0.55* 1993 Revenue $ 83,997 $ 89,843 $ 82,214 $ 85,597 Expense 68,266 72,623 66,876 69,568 Gross Voyage Profit 15,731 17,220 15,338 16,029 Income Before Extraordinary Item 1,056 3,184 1,465 1,940 Extraordinary Item -- (1,703) 110 (123) Net Income 1,056 1,481 1,575 1,817 Earnings per Common and Common Equivalent Share: Primary: Income Before Extraordinary Item 0.10* 0.43* 0.19* 0.29* Extraordinary Item -- (0.26)* 0.02* (0.02)* Net Income 0.10* 0.17* 0.21* 0.27*
[FN] *Restated for November 17, 1995, stock dividend of twenty-five percent for each one share of common stock outstanding. COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 1994 AND 1995 (Source: New York Stock Exchange)
Cash Dividends 1994 High Low Paid ----------- -------- ------- ---------- 1st 18 1/2* 14 5/8* .04/Share* Quarter 2nd 18 1/8* 16* .04/Share* Quarter 3rd 17 3/8* 15 3/4* .04/Share* Quarter 4th 17 1/4* 15 5/8* .04/Share* Quarter
Cash Dividends 1995 High Low Paid ----------- ------- ------- ---------- 1st 16 1/2* 15 3/8* .04/Share* Quarter 2nd 17 1/4* 16* .04/Share* Quarter 3rd 20 1/8* 16 5/8* .04/Share* Quarter 4th 21 3/4* 18 7/8 .0625/Share Quarter Approximate Number of Common Stockholders of Record at March 1, 1996 - 900 *Restated for November 17, 1995, stock dividend of twenty-five percent for each one share of common stock outstanding. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To The Stockholders of International Shipholding Corporation: We have audited the accompanying consolidated balance sheets of International Shipholding Corporation (a Delaware corporation) and subsidiaries (the Company) as of December 31, 1995 and 1994, and the related consolidated statements of income, changes in stockholders' investment and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International Shipholding Corporation and subsidiaries as of December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. New Orleans, Louisiana January 12, 1996 /S/ Arthur Andersen LLP Arthur Andersen LLP
EX-11 3 EARNINGS PER SHARE CALCULATIONS EXHIBIT 11(1)
Year Ended December 31, 1995 1994 1993 _________ _________ _________ Primary: Average Shares Outstanding 6,682,887 6,682,887 6,359,711 Net Effect of Dilutive Stock Warrants - Based on the Treasury Stock Method Using Average Market Price -- -- 165,548 --------- --------- --------- Common and Common Equivalent Shares 6,682,887 6,682,887 6,525,259 ========= ========= ========= Fully Diluted: Average Shares Outstanding 6,682,887 6,682,887 6,359,711 Net Effect of Dilutive Stock Warrants - Using Ending Market Price Unless Average Market Price is Higher -- -- 165,548 Common and Common Equivalent Shares 6,682,887 6,682,887 6,525,259 ========= ========= ========= Income before Extraordinary Item $20,980,000 $13,051,000 $7,645,000 Extraordinary Item -- -- (1,716,000) ----------- ----------- ---------- Net Income $20,980,000 $13,051,000 $5,929,000 Less: Preferred Stock Dividends -- -- (868,000) Accretion of Discount on Preferred Stock -- -- (202,000) ----------- ----------- ----------- Net Income Applicable to Common and Common Equivalent Shares $20,980,000 $13,051,000 $4,859,000 =========== =========== ========== Per Share Amount: Income before Extraordinary Item $ 3.14 $ 1.95 $ 1.01 Extraordinary Item $ -- $ -- $ (0.26) ----------- ----------- --------- Net Income $ 3.14 $ 1.95 $ .75 =========== =========== =========
[FN] All per share and weighted average share amounts have been restated for November 17, 1995 twenty-five percent stock dividend. EX-22 4 SUBSIDIARIES OF THE REGISTRANT AT 12/31/95 INTERNATIONAL SHIPHOLDING CORPORATION SUBSIDIARIES OF THE REGISTRANT AS OF DECEMBER 31, 1995
Jurisdiction Under Which Organized __________________ International Shipholding Corporation (Registrant) Delaware International Shipholding Corporation (1) New York River Towing, Inc. Delaware A/S Havfond Norwegian Waterman Steamship Corporation New York Sulphur Carriers, Inc. Delaware Central Gulf Lines, Inc. Delaware Florida Barge Lines Corporation Delaware Material Transfer, Inc. Delaware Enterprise Ship Company, Inc. Delaware Bay Insurance Company Bermuda LCI Shipholdings, Inc. Liberia Gulf South Inc. Liberia Gulf South Shipping Pte. Ltd. Singapore Cypress Auto Carriers, Inc. Liberia New Combo, Inc. Liberia Forest Lines Inc. Liberia Marco Shipping Co. Pte. Ltd. (2) Singapore Marcoship Agencies Malaysia N. W. Johnsen & Co., Inc. New York St. Rose Fleeting Company, Inc. Louisiana Lash Marine Services, Inc. Louisiana Lash Intermodal Terminal Company Delaware Resource Carriers, Inc. Delaware
[FN] (1) New York name-holding corporation (2) 50% owned by the Registrant All of the subsidiaries listed above are wholly- owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated. EX-27 5
5 12-MOS DEC-31-1995 DEC-31-1995 54281 4630 47243 (409) 10545 121915 678810 (243929) 647580 108508 289495 6756 0 0 159505 647580 0 341789 0 303875 25561 0 25561 32776 11796 20980 0 0 0 20980 3.14 0
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